Behind The Tech with Kevin Scott - Wences Casares: Betting on Bitcoin in a big way

Episode Date: January 29, 2019

Find out how a man who grew up on a sheep ranch in Argentina ended up a serial entrepreneur who many credit with bringing Bitcoin to Silicon Valley. Wences Casares explains why he believes in cryptocurrency – and how it might help solve some of today’s challenges in the world. Don’t miss this episode!

I cannot change it. Nobody can change it. Not government, no company. So to Behind the Tech. I'm your host, Kevin Scott, Chief Technology Officer for Microsoft. In this podcast, we're going to get behind the tech. We'll talk with some of the people who made our modern tech world possible and understand what motivated them to create what they did. So join me to maybe learn a little bit about the history of computing and get a few behind-the-scenes insights into what's happening today. Stick around. history of computing, and get a few behind-the-scenes insights into what's happening today. Stick

around. Hello, and welcome to the show. I'm Kevin Scott. And I'm Christina Warren, Senior Cloud Developer Advocate at Microsoft. And today, we're going to hear from the CEO of Zappo, Winsys Kassaris. Yeah, Winsys is a true serial entrepreneur and one of the most influential investors in Bitcoin. Some of the folks in Silicon Valley like credit him as the person who brought Bitcoin as sort of an entrepreneurial thing to Silicon Valley. And like he's just done extraordinary things both with Zappo and with online finance over

a bunch of different companies over the years. And you had the chance to speak with Wences a few weeks back in front of a live audience. Yeah, I mean, Wences really has a fascinating story. He grew up in one of the most beautiful and most remote places in the world on a sheep ranch in Patagonia. I think you'll hear in the interview that he's something like 100 miles from the nearest town. The nearest town is basically a post office. And in the winter, they get completely snowed in. So he grew up in this environment where he was very isolated but had the good fortune to have a tinkerer as a father.

And his story is fascinating. I'm super excited for everyone to get to hear this interview. Definitely, because I know what I want to know is, how does a person who's growing up on a remote sheep ranch in Argentina wind up becoming the CEO of Zappo, which many people say is the most secure Bitcoin wallet in the world? Good question. We're going to find out. So here's our conversation. So I'm just so excited to have Wences Casares here with us today. So Wences is a legitimate serial entrepreneur.

Like you've been doing this, you know, like your first company was in 1994, right? Yep. And it's just sort of crazy, like the number of companies that you started. For a while now, you have been maybe Silicon Valley's most influential advocate for Bitcoin. The company that you're CEO of right now, Sappo is probably, I mean, I guess hard to say, but probably has the largest volume of Bitcoin assets under management and beautiful wallet software. And we'll get into all of this stuff later, but just everybody, round of applause for Wences.

Thank you for having me. Like seriously, maybe the most interesting man in the world. I'm the Dos Equis man. So let's start at the very beginning. You are from one of the most beautiful places on the earth. You're from Argentina. You have this amazing ranch in Patagonia. I've seen the pictures of this. Your family has been in Patagonia for generations. You're sheep ranchers historically. So how on God's earth did you get from that to a person in the technology industry? I sometimes wonder the same thing because it's not where my friends ended up, my friends from Patagonia. And the best way I explain it to myself is three lucky accidents.

First lucky accident was that my parents' ranch is very isolated. It's 20 miles from the closest ranch and it's 100 miles from a small town that is just a police station and a market and in the winter when it snows usually you cannot get in and out so it's super isolated and my father got into ham radio as a way to communicate with the rest of the world and that changed the life and the ranch at night they would fire a generator and they would talk on that radio and we all gathered around my father as he operated that radio and we learned about what was going on in other parts of the family and the country from other people it was super interesting and sometimes it was the best part of the day and that led him

he built his own radios because they were expensive and playing with transistors led him to build a computer. I think today we would probably call it a calculator. I never got into the hardware part of it, but he dragged me into the programming of it. And was your dad, like, had he gone to university or did he just learn all of this stuff on his own? On his own, with books. We would go to town, he would order these books, he would wait for them very eagerly,

we'd go to town, pick them up, he would disappear these books. He would wait for them very eagerly. We'd go to town, pick them up. He would disappear every night. And then months later, he would emerge with something fun. So I think that was a super lucky accident. It changed my life. And it's very random that a Patagonian sheep farmer would be interested in all of that. And the second lucky accident was that my mom would keep part of the wool production of the ranch and turn it into sweaters and sell them in touristy parts of Patagonia. It's a very unusual entrepreneurial activity, very unusual for a woman back then to work, very unusual for someone to be entrepreneurial that way. And she asked me for help going to these places

and selling the sweaters and keeping the books, which was so fun. It was like keeping score. And that got me hooked to that sort of entrepreneurial activity. I think that a lot of the Catholic tradition sort of makes you not entrepreneurial in a way that, I don't know how to explain it, but in a very strong Catholic tradition,

it's wrong to say that you want to make money. And my mom, without meaning to, asking me for help with this, inoculated me against that. It was fun to try to make money. It was okay. And the third lucky accident was when I was 17. In my senior year of high school, a Rotary Club gave me a scholarship to come to the U.S. as an exchange student. And I came to a small town in western Pennsylvania near Pittsburgh, where I lived for a year. And that changed my life. I learned English. I learned to love this country.

And I think those three lucky accidents explain 90% of how I got from there to here. It was just super fascinating. So there's this other really interesting thing in your career. If you go talk to folks in Silicon Valley, like our friend Reid Hoffman and other folks, everybody sort of gives you credit as the person who convinced people to start investing in Bitcoin in Silicon Valley. And you were just super early on. People still, I think, have a bunch of risk aversion around Bitcoin.

But when you started, it was really super early. And it wasn't a popular thing, even among technology-savvy folks. And one of your first businesses that you built was, you literally brought the Internet to Argentina. You built Argentina's first ISP again, like back in 1994, like just sort of the very beginning days. And so, you know, since I feel like people throw this word pioneer around, you know, like willy nilly, like everybody's a pioneer or something. But like that's sort of pioneering, right? Like identify this really interesting thing when it's almost not a thing at all. And then you're convinced that you need to make it available to the public.

Where did that come from? I think that there's a lot of lack in there. But I remember after coming to the U.S. as an exchange student, I moved to Buenos Aires, which is 2,000 kilometers from where I grew up, to go to college. And I would share a train ride a little over an hour every day there and back with my sister. And very often our favorite topic of conversation in the train was how lucky our grandfather who had gone to Patagonia. That was a true pioneer. He went to Patagonia. There were no roads, no fences.

He had to carry his own guns because there was no police. How fun. And we, it's so unfair. We get to live in a world where everything is discovered. And everywhere has fences and roads and police now. How lucky our grandfather. How unlucky us. And now I look back and I laugh.

It's like, I wouldn't trade myself for my grandfather in a million years right now. I think that, you know, shortly after those conversations, we stumbled upon the internet really by luck and chance. And we developed the first internet service provider in Argentina and that led to starting other things. And now I look back and say, like, I think it's one in a million that you stumbled up in your life

into the emergence of something like the internet and that you get to play a role in a market. But to have it twice in a lifetime or in a career with that and with Bitcoin, I think it's incredibly lucky. So you did this ISP and you sold it and then you actually at some point did video games, right? Yeah.

How did that transition go from ISP to video games? I don't know if there was anything sort of in between there and then from that to getting into cryptocurrencies and finance and payments and that whole world. When I was growing up in Patagonia, I saw my parents lose everything three times. The first time was because of huge devaluation, the second time because of hyperinflation, and the third time because the government confiscated all bank deposits. And it seemed like every time they were recovering from the last disaster and they were getting to a good place, something new happened that made them lose everything. My memory from that is not an economic or financial memory. It's a very emotional memory. I remember them fighting about this.

And I remember being scared because they were scared and insecurity. And I remember not only them fighting, but the world around us, other people around us being similarly worried and scared. And that was my main impression of the grown-up world, that it has these very unfair things that happen and that hurt the poor more than the rich. Some people with more money than us would buy a little house or an apartment and that would protect their money. And if they had even more money,

they may have a bank account abroad and that would very much protect their money. But when these things happen, people like us, we get wiped out every time. And that stayed with me as my main impression of these serious things that they were not able to deal with. And when I saw the internet and started the first ISP, I was in love with it in a very romantic and naive way. And I thought it was going to fix all of the world's problems and very quickly. And for me, the main problem the world had was money problem. Most people don't have an easy way to receive payments and payment or store the fruits of their labor in a way that they can be certain that it cannot be manipulated away.

So I started an online bank that for random reasons turned into an online brokerage, turned into the biggest online brokerage in Latin America. It was my first big exit. It was bought by a large bank for $750 million in cash. First time I made serious money. And then I started an online bank for the poor because the prior company didn't do what I wanted. We started an online bank for the underbanked in Brazil. Did really well.

We became the largest bank in Brazil for that market. It had 15 million customers, 5,000 branches, and it was acquired by Banco do Brasil. And then at one point, I can't remember if it was an event or a press release or something, said that the financial services entrepreneur, Wences Casares. And I said, why do they say financial services? I'm an entrepreneur. And I got upset that I was being, but of course, yeah, one thing led to another. And I had done a couple of things that weren't financial services.

And I said, like, I am, I'm not financial services. I'm going to do video games. And I did it. It was harder than I thought. I was lucky that it did well, but it was just a stint. I did a company. We started doing desktop games. And then I actually came here a lot because we did a company. We started doing desktop games. And then I actually came here a lot

because we did a lot when they were launching Xbox Live. We did a lot of live games and we did two console games and eventually was acquired by Activision. And I never again went to gaming. So that's interesting. Like, I don't want to interrupt the story,

but I sort of do because, you know, like based on my experience, I'm surprised that you say that video games are super hard versus all of this setting up online banks. And I mean, like finances is hyper-regulated, super idiosyncratic type of business. And like, in my mind, like that would be way more challenging to get your head wrapped around. But like, evidently you were able to do that. If you have two equally talented first-time entrepreneurs

who are sort of twins equally talented, one is going into fintech and another one is going into video games, I would bet on the video games guy. I do think that there's more roadkill because of the regulation and because there's more depth to fintech. It's a lot of different things. It's not just payments, but lending and risk and lots of different kinds of risk.

But if you change it a little and you say, instead of being first-time entrepreneurs, one is a first-time entrepreneur going into FinTech and the other one is a FinTech entrepreneur going into video games, I put my money in the first-time entrepreneur in FinTech. I think there are a lot of things that you think you learn that you didn't. It's easier to start from scratch in an industry that is so different. All right. I should not have done that. Not really. If I were to go back, I did it out of pride and ego. I was upset that I was being labeled and I should have just stayed with the label.

Because most of what you've done after, all of it. Yeah, it took me that to learn that this is what I like and this is what I know. And, but that was a mistake. And that's sort of interesting. Like I had this mentor, very important, influential mentor in my career. And like one of the things that he told me is he like gave me this framework where he's like, imagine that you have five buckets and on one end, the label of the bucket is idiot. And on the other end is genius. And in the middle is mediocre average. And he's like, you take everything that

you know about yourself and you can put it into one of these five buckets. Like all of us have things that we're idiots at and all of us have things that we're geniuses at. And like his thesis was that you could spend extraordinary amounts of effort trying to move something up from one bucket to another. And like maybe if you have a miracle, like you can move it two buckets. But that means that if you've got this thing that you're an idiot at, you know, you could spend a lot of effort and have a lot of luck and still just be average. And like all the while that you've done that, you have deprived yourself of the opportunity to do the thing that you're a genius at. And like, I think that's a really difficult lesson to learn.

Yeah, that strongly resonates with me. And the older I get, the more I'm in that different school that you just explained, which is forget the areas for improvement. Just know that you were bad at that and focus on the ones you got good at. And just say, hey, I'm bad at this. My wife does that to me all the time. I'm bad at that. I won't do that. It's like, okay. You know, and the thing is, is the other superpower that I think a lot of us fail to realize that's sort of complimentary is, like, we get to choose how we build teams and who we collaborate with.

And you can surround yourself with people who are geniuses at the things you're an idiot at. And that's not a testament to how you're deficient. That's just good team building. And it sounds almost childish, but I learned that it is a superpower and it's a privilege that we have to build the teams around us to complement that.

But I find that it's as equally almost important for me to say out loud in front of everybody that matters to say, I am bad at that, right? Right. You're right. You said that. It's okay. It's true.

Anyway, let's get back to like, how did Bitcoin come into your life? I was living in Palo Alto, running a company called Lemon Wallet, which is a mobile wallet. And in 2011, a group of childhood friends from Patagonia were doing something. They were all chipping in and they told me to send my part. And at the time, Argentina had cut off all ways of sending money.

Western Union was cut off. You had to send money to the Argentine Central Bank and then fill a ton of paperwork. And if you were lucky, maybe they would send it to the person you wanted to, but at the whatever exchange rate they deemed appropriate, which was usually not very fair. It seemed like very cumbersome, unfair, and too much effort for the amount of money I had to send. So I started asking my sister if she could pay my friends and I was going to pay her later. And one of my friends who's not a techie and not a finance guy, said, hey, why don't you try this Bitcoin thing? And I said, what is that?

And I said, it's a new digital currency that you can send money anywhere without asking anyone's permission. And since I am a fintech guy and I am a tech guy, and this was coming to me from an Argentine friend of mine, who was one of my dearest friends who knows nothing about these things, I was super skeptical. So I said, yeah, right. So I started fooling around, reading online. It seems catchy. And I found someone on Craigslist willing to sell me $2,000 worth of Bitcoin. And I was sure I was going to be scammed, but I said, let's try. And what was Bitcoin trading at?

This is 2011. It was like three bucks or something like that. Maybe off by a little bit, around that. So I meet with this guy, guy in his 50s, very Palo Alto-y looking, like long white hair, super calm, sort of. And makes me download some app and I give him $2,000, and he scans secure code, and he shows me that I have the $2,000 worth of Bitcoin in my app, and I say, okay. And I start walking, and I'm convinced I just got scammed of $2,000. Then I get back to the office, and a few hours later,

I get a message from my friend saying, hey, Wences, I got the money, thank you. I sold them for pesos, we're good. And I'm like, what? What just happened? And that took me on a journey that lasted about six months. Part was reading, then flying to meet people who knew a lot about it, sometimes offering to fly them, then start mining, then just start fooling around with the code. The last stage, I hired some hackers for what for me was serious money to try to break it with a reward if they broke it. And after I saw that, what they came back with and said, wow, this thing is for real.

I started super skeptical, but I emerged on the other side of that. I was at a point where I was ready to throw in the towel on this romantic, naive idea that the internet was going to make it so nobody would suffer what my parents suffered again. For the last 30 years, a lot of things have changed dramatically because of the internet, especially communications, entertainment, a few other things. But basic checking account looks exactly the same. The ATM looks the same. The debit card looks the same. Yeah, you can access them with home banking, but if that's all the progress, it's really pathetic. And if you look at what percentage of the population globally has access to a checking account, a Visa, a MasterCard, debit card, it's the same percentage. We haven't made any progress. I was very discouraged with all of this and really,

truly thinking of just retiring. It's like, I don't know how to describe it. I was very discouraged with all of this and really truly thinking of just retiring. It's like, I don't know how to describe it. I was disheartened with the whole thing. And I saw this and I said, wow, this is it. If this thing succeeds, it will do for money what TCPAP did for information. And I decided to dedicate the rest of my career, my reputation, my capital to help this thing succeed. For me, it's not really about money or proving anything. Nothing would make me prouder than to tell my grandkids when they ask,

hey, grandpa, what did you do? You know what? I saw my parents go through this. And today, that's impossible because Bitcoin succeeded. And I was part of a generation, an ecosystem, a lot of people who made it possible that it succeeded because it wasn't granted that it was going to succeed. So let's talk a little bit about what Bitcoin is. Most of the people in the room probably are familiar, but like Bitcoin isn't really a monolithic thing. It's sort of like a collection of things. It's this decentralized peer-to-peer network that has a Bitcoin protocol. It is this sort of public transaction ledger that's called the blockchain. As a computer scientist, the thing that is really interesting and that I think is clever is this

whole notion of proof of work algorithm for reaching consensus. And it's the thing that makes the blockchain the blockchain. So like, how do we all agree that the current state of this thing is what it is? And then it's like a whole bunch of rules for like, this is how we do transactions. This is how new currency is printed. So you've been in this ecosystem for a really long while. And you pressure tested it in ways that most folks haven't. What is the thing that you think most people misunderstand about Bitcoin? There is a saying in Chinese that say that when the genius points at the moon,

the fool looks at the finger. And I think that that's particularly true in Bitcoin because it has so many interesting fingers, right? Whether it's the cryptography interesting or who the hell is Satoshi is interesting or, you know or the financial or legal consequences are interesting. But it's interesting that most often what's missed is the most important thing, which is, if you wanted to understand the internet, all of you are really good technologists, so you dive very quickly into the TCPAP protocol

and how is a packet composed and what's in the header and what's in the footer and what are the rules to manage those packets and what do we do with loose packets and how do we figure out the routes and how do we have alternative routes and all of that. But the truth is if you had to explain it so anyone could understand it and make their own judgment about if it's relevant for them or not and in what degree, you have to go back to first principles and in the internet in first principles is something that moves information from anywhere in the network to anywhere in the network, number one.

Number two, pretty much in real time. And number three, for free. There are no gatekeepers. The information can move freely within that network, which we take for granted today, but most networks didn't have those three attributes back then. For Bitcoin and blockchain today, a lot of things are being said that are not true, are either just false or exaggerated or hype.

And I find that the best antidote to that is just go to first principles. And the equivalent first principles in the case of Bitcoin is that the only thing that matters that is new since January 2009, where the Bitcoin, he said, the only thing that matters that is new since January 2009, where the Bitcoin blockchain went live, the only thing that was made possible then that wasn't possible before, everything else was possible before, is this idea that you can have a sovereign computer system. Up until January 2009, all computer systems belonged to a person, a company, or a government.

And therefore, it had to obey the rules and regulations of that person, that company, or that government, that jurisdiction. And sovereign used to be kings and queens. Now they are mostly nation states. And now you have a little, very humble computer system that is sovereign, that only obeys its own rules. I'm not using the word sovereign loosely here. I really mean it with all the full weight of it. People do not understand this, which you say, what is one thing that people don't understand? Imagine that there is a transaction, the blockchain is public. There is a transaction from last year between Kevin and I. Everybody can see it. They don't know that it's Kevin and I. You and I know, but it's there. Everybody can see it.

You sent me a Bitcoin. And imagine that Trump, the president of the most powerful nation, wakes up tomorrow and he says, I don't like that transaction. I don't know who it is, but I don't like it. Okay, and he calls Putin and convinces Putin that he shouldn't like it either.

And Putin says, I don't like it either. Let's call Xi. And the three of them say, no that he shouldn't like it either. And Putin says, I don't like it either. Let's call Xi. And the three of them say, no, we don't like it. And they call Bill Gates and Larry Page and Mark Zuckerberg. And six of them say, yes, we hate it. It shouldn't be there. So what?

They cannot change it. And this seems like a joke and it seems trivial. You tell me something else that cannot be changed if everybody else wants to change it. I don't know anything. It is remarkable. More important than that, as they are discussing, new transactions are coming in. And they cannot keep new transactions. They can put me in jail so I don't send a transaction to be processed, but they cannot stop the machine that is processing new transactions.

They cannot stop new transactions from being processed. All those same six people. That is incredible. That is a truly sovereign system. It's the only sovereign system that has ever existed. We may see others in the future. That is a game changer. Everything else is secondary. And the only new thing that this brings is sovereignty. Most use cases that are being touted for the blockchain do not make any sense. I think because the blockchain only adds value to something that can benefit from sovereignty. So where people tell you, oh, it would be great, the blockchain, to keep track of property titles. It's ridiculous. That doesn't follow any logic. Property titles have value because they've been issued by an authority, either a county or something like that. It's enforced by the courts. It can be enforced by the police. All of those are central authorities. You cannot add any value by adding

a sovereign to all of that, right? Same thing when people say, oh, use a blockchain to improve security settlement. We shouldn't be settling securities in three days. True, but there's no reason. It's very expensive to add a sovereign computer system. It's expensive in electricity. It's expensive in how many transactions you can process and you can only append. There are many ways in which it's expensive. If you don't get

the full value of sovereignty, it's ridiculous to suggest that you can get any benefit from adding a blockchain. But to answer your question, the main thing I think people don't get is to what degree we have among us a system that is sovereign and people don't realize that that has already happened. Yeah. I mean, I remember the first conversation that we had about Bitcoin, like you mentioned this example from your childhood and like we have these crazy sort of

inflationary things going on in Venezuela right now. And like, you know, maybe it's going to or is happening in Turkey. And like this whole notion that Bitcoin is a viable alternative to fiat currencies. And, you know, because they're only ever going to be 21 million of them, like they all will have been mined by, you know, 2040 or so. You can't have a government decide that they're going to get their way out of their poor decision making by just creating more of them. Like, I don't know why I hadn't had that thought before, but like, that's really an incredibly powerful notion. And like, I don't think we've collectively internalized like what that could possibly

mean for society. I think Venezuela and countries like Venezuela are an example that illustrates why this, a different way, could be useful. But you don't need that level of irresponsibility to need a Bitcoin. What I mean by this is, there are only a very few cases in which I think a sovereign system could be valuable,

could be more valuable than a central system. I think that for property titles, we're much better off what we have today. The people involved should use better technology to do things in real time and with open databases, but they don't need a blockchain. They should use some technology that Microsoft already produces

and upgrade their systems. But there are some very few use cases in which probably sovereignty will be a game changer. Maybe identity is one. I'm not an expert in identity. I am an expert in money. And I do think that money is definitely one area in which sovereignty is a game changer

if we can achieve it. And the way I see it is illustrated by the case of the Venezuelans of the world, but we would all benefit, even in this country. And what I mean by that is, in case of money, a sovereign system, in this case, provides two things that matter. One is you will never have more than 21 million Bitcoin,

and you don't have to trust anyone for that. You know that it just is. Because it's a sovereign system that nobody can change, it will never have more than 21 million Bitcoin. I cannot change it, nobody can change it, not government have more than 21 million Bitcoin. I cannot change it. Nobody can change it. Not government, no companies. So that's one thing. And the other one is it's uncensorable. Nobody can keep you from acquiring Bitcoin. Nobody can keep you from sending Bitcoin to anyone. And nobody can keep you from holding Bitcoin. Those two things make it so you can

imagine a world in which Bitcoin is two things. It's global non-political standard of value, and it's a global non-political standard of settlement. We have a global non-political standard of weight, the kilo or the pound. We have a global non-political standard of length, meter, feet, whatever. And we think it's okay not to have a global non-political standard of value, and that's wrong. We should have a global non-political standard of value. And that's wrong. We should have a global non-political standard of value. I'm a world in which Bitcoin succeeds. It's a world in which when you ask for the price of any currency in the world,

the New Zealand dollar, you get a response in bits, which are fractions of a Bitcoin, 700 bits. And the Turkish lira, 1200 bits. And a barrel of oil, 5,000 bits. And the GDP of Indonesia, 25,000 Bitcoin. And the global GDP, it's about a million and a half Bitcoin. And the reserves of the South African Central Bank

is 15,000 Bitcoin. And when your grandkids say, how did you guys keep track of all of that when you didn't have Bitcoin? We did mostly in dollars. But dollars is the currency of one country. Yeah, the most powerful country, but we didn't have anything else, so we used that. Wow.

And how did you guys keep track of the dollar? Mostly in euros, sometimes in yen. Wow, you guys were sick. It's what we had, right? And there are a lot of things that are lost when you don't have a global non-political standard of, the capitalist system works in a much better way when you have that, something that it's a global non-political standard of value

across time, across geographies. And especially when that is coupled with a global non-political standard of settlement. Today, you can only belong to a settlement network if you are a bank. ACH in the US or Fedwire or Chips or SEPA in the US or Swift or Visa, MasterCard. You can only belong if you're a bank.

For some reason that I don't understand, they still work during business bank hours and not on weekends. So it doesn't matter if you're Jamie Dimon, nobody in this world can move money on a Saturday. Today, 2018, money doesn't move on weekends. The guys are playing golf. Like, really? Our grandkids are going to say, like, really? Yeah. And my father sells the wool once a year, and we leave the rest

of the year from that one big sale. And one year, and he gets paid in 30, 60, and 90 days. All kinds of things have happened to him, including the money being worth nothing by the time he cashes the check in 90 days. But one thing that happened once is that he cashed the 30-day check, and by the time it was time to cash in the 60-day check, the Falklands War started, and the buyers were British,

and they wanted to pay, but all payments between two countries were stopped. And it took seven years for him to get that money. It doesn't make any sense that payments have to be political. It makes sense to have a super low level network that does what TCPAD for information does it for money. It doesn't matter if you're transacting in euros or in dollars or in pesos. Transactions that either once a day or once a week or once a month at some point get settled in an aggregate manner in a blockchain that we all know it's true that none of us can modify arbitrarily.

That would be the biggest leap in the democratization of money we had ever seen. And it's now possible because of the Bitcoin blockchain. So are you already seeing folks in places like Venezuela using Bitcoin to shelter their assets as their currencies are going wonky? Yes. Bitcoin is a lot more important for Venezuela than Venezuela is for Bitcoin. If you look at all of the Bitcoin activity, Venezuela doesn't really, it's a blip. But if you look at Venezuela,

it's amazing how many people are using Bitcoin in such a small country, much more per capita, per smartphone than in other places. And what's happened is that people in Venezuela are desperately trying to get rid of Bolivarism. So there are these informal avenues of driving $100 bills, which is very similar to the way

that drugs would get out, you know, with little airplanes, with boats, with all kinds of things. But you have those avenues, little airplanes driving $100 bills in boats, networks of people. It's a whole sophisticated system. The government has dollars sniffing dogs, right?

It's crazy. And really it's rivers, rivers and rivers of $100 bills going to supply this demand for people who want that because they want to get rid of. But they have to move physically, right?

So people are using Bitcoin because they can avoid all of that and as an intermediate step to then get something like digital dollars or digital euros. I mean, really, I mean, dollar sniffing dogs. That is really, really crazy. So let's talk about Zappo. Why start this company? I want to dedicate the rest of my career to help Bitcoin succeed.

And I think that right now the biggest hurdles are with ease of use and security, perhaps in the reverse order. Security make it very easy for people to use and easy to access. And the biggest hurdle in terms of security is that to put the problem of securing the private keys on a consumer's lap, it's too much to ask. I think it would be very bad advice

to tell my mom, here, get some Bitcoin and you take care of this private key. A lot of bad things can happen and they do happen. So to just make that a black box for the consumer saying, don't worry,

you don't even know what a private key is, we will take care of it. I think there will always be a small part of the market that can do that by themselves and they should. And I think Bitcoin would not be interesting if it didn't offer the capability for people to have their own private

keys. But I also think it's important that someone who doesn't want to have that burden can still have access to that. So that's our main value proposition is forget about this securing private keys problem. We'll do that for you. Is that like your biggest technical challenge is like how you keep these keys secure? I would say at the philosophical level, keeping the key secure is our biggest value proposition and therefore our biggest challenge. We do that by keeping them offline. And a lot of the security is not technological security,

but just physical security. You have to break into places that are hard to break into, more like Fort Knox. At the technological level, there are some parts of that that, of course, are technological, but I would say some of our biggest challenges are... So, yeah, I would say at a philosophical level,

that's definitely the biggest challenge. In a more practical level, like a lot of companies, we run... Of course, we don't keep private keys in the cloud, mostly the opposite, but a lot of our infrastructure runs in the cloud. A lot of it runs in AWS. Some of it in Azure. We use some things from Google Cloud, too.

And I feel doing this company the way I did starting a bank in Brazil 10 years ago, starting a bank in Brazil today would be a lot easier because you would go into Azure and you just turn on a bunch of modules. And the way I did a company prior to this, we focus on the things where we're really adding value. And a lot of the modules that do not add value are built for us and are run in the cloud

and we pay by the minute or the gigabyte or whatever we need to. But going into Bitcoin is like going back in time. A lot of the super basic infrastructure we have to build from scratch and maintain, right? And I had sort of forgotten how much work that is. And like, what's, if you can say, like what has been or is the most challenging

piece of infrastructure to build? There are some people that work with me that would be much more better qualified to answer that question with more, being more precise. But for example, the module that talks to the Bitcoin network, right? How do we know that our transactions that are being sent to the Bitcoin network touch our infrastructure, touch our wallets? I would consider maybe what we do in the cold storage side to be proprietary. I wouldn't like to have to turn a module for that. I think that's part of what we do.

But there's a lot of things that happen after that that we have to build from scratch. I don't think we're adding a lot of value. It's just that we need to do it to be in business but if you could have a for example one is uh all of what it's interfacing the the bitcoin network it's a very clear example handling transactions both outgoing and incoming transactions require handling it's very different in the case of bitcoin, the way you handle each one. And a lot of that, I would say, is very commodity work. But we have to do it from scratch because that infrastructure doesn't exist.

I mean, a lot of things that if you were a bank, you would never be doing from scratch. Here you're doing from zero. Right. So what's the most interesting Bitcoin story that you can share in public? I've heard some of the private stories, which are like pretty interesting. But like you must have seen all sorts of crazy things over the past several years. I don't have one that comes to mind. Every day they're sort of interesting.

We keep track in customer service, sort of a top 10 crazy things that show up usually through customer service. It's a person, a techie, who believes that also bought them when they were maybe a few hundred thousand dollars. And the private key is a mnemonic rule that lives in

his brain only. And I've tried to convince this friend of mine that it'd be good to have some sort of backup because if he dies, all that money basically disappears until you guys figure out quantum

computing or something. I don't know if the quantum computers can like redeb brain cells. No, but what will happen is that people will start using quantum computing to go after coins that haven't upgraded the cryptography, right? So, and if this guy doesn't do this, that will be one of the addresses. But this guy walks around with a couple hundred million dollars in his brain, basically. It's crazy. So speaking of quantum, are you all using quantum hard crypto to make sure that when the quantum computers come that everything is still reasonably secure? I think that when quantum computing comes,

first of all, when quantum computing comes, Bitcoin private key will be the least of our problems, right? I think we're all counting with quantum computing happening, not as a discrete jump from zero to anyone can use it, to something more gradual where first only a couple of very large companies or government have access to it and then more people etc and to the point where we have time to upgrade not only bitcoin but https and a bunch of other things and that you will begin to see most addresses upgrade and you will see some addresses that don't upgrade and they don't upgrade because they don't have their private keys.

So eventually quantum computing will be used to figure out those private keys. So this is sort of an interesting week for Bitcoin. We've had some fluctuation in the exchange rates. How do you think about the future of Bitcoin, where things are going over the next few years? Current narrative in the market is that ICO treasuries are selling what they had in the treasury, which is mostly Bitcoin and Ether, and that they're doing that because the SEC made these settlements where they forced the ICO treasuries to make their investors whole in dollars, which is news. And it's an interesting take that people thought that maybe if they wereuries to make their investors whole in dollars, which is news. And it's an interesting take that people thought that maybe if they were forced to make their investors whole,

they would have to return what the investors invested, which was mostly Bitcoin or Ether. They didn't do that. They said you have to make them whole in dollars. So a lot of these ICO treasuries are selling Bitcoins mostly and Ether secondarily to cover that. They see that as a liability and they are either getting ahead of the settlement or just hedging a settlement in dollars. So that's a lot of selling pressure from a lot of ICOs. And a lot of the crypto hedge funds were set up in the second half of last year. The first year anniversary is coming up and it's getting rid of a lot of lockups and causing a lot of lockups and

causing a lot of redemptions. They are also selling pressure. I think more important than even though all of that is true, I think Bitcoin has gone from nine cents the first time it had a price, some serious price with some volume around it was nine cents per Bitcoin to whatever, 3,000 Bitcoins today, in six very discrete jumps. Those jumps were about a month each. Most of the rest of the time, it has gone down. So for 10 years, it has gone down all the time, except for six rallies in which it just shot up by orders of magnitude. It's a machine of deceiving people. It goes down for most of the time, more than 90% of the time it goes down, but when it goes up, it goes up a lot. And after these rallies, the last one was in November, I experienced four of these six rallies. And after

these rallies, you have to digest all of what happens in that rally, right? Too many people get in that shouldn't get in, Too many people get in that without understanding what they're getting in. Too many people put more money than they should into it. So in these periods after the rallies, I think the best way to think of them is imagine a tree that has a lot of fruit. Some of the fruit is great.

Some still not mature. Some is rotten. It shouldn't be there. So you shake the tree and some of that rotten fruit falls. And you won't have another rally until nothing else falls. And so right now you shake it and people fall because, oh my God, I never thought it was going to go so low or, oh my God, this has taken so long. I thought it was going to be a quick flip or, oh my God, I put too much money into it. When all of those, oh my God,

stop and it takes a while, when, you know, right now you shake it and tons of things fall, which tells me we have for a while. In my opinion, we will see new minimums maybe in the 2000s, in 2019. And I don't think we will see new maximums until 2020. In my opinion, we will see more than 100,000 in 2020. And I think with Bitcoin, the most important thing is

nobody should own an amount of Bitcoin you cannot afford to lose because it's an experiment. And as such, it can fail. And in my opinion, the chances of Bitcoin failing are high, at least 20%. So don't own an amount you can afford to lose because you may very well lose it. But in my opinion, it has a 50% chance of succeeding. And if it succeeds, it's going to be more than a million dollars per Bitcoin in less than seven years. So it's incredibly asymmetrical.

So you may as well have a very small amount that you can afford to lose in Bitcoin. Because if I am wrong, you lose whatever, what you were going to spend on a weekend away with your wife. Instead of going away for a weekend, you stay home,

you buy some Bitcoin and forget about it for seven years. Like you spent it. But if I am right, it's going to be 200 times what you put in today, right? So put $100,000 today, it's going to be $20 million if I am right. If I am wrong, I may lose 1% or whatever, a very small amount of your savings. If I am right, I want a grandkid named Wensito. Yeah, I'm sure that's a deal a lot of people would be willing to make. So we chatted a little bit about miners.

And I think it's just sort of a super, super fascinating thing. Like NVIDIA sort of purportedly has a bunch of, you know, sort of backed up inventory because people are investing less in GPUs for mining recently. What are you seeing in terms of mining activity? Bitcoin has been around for 10 years. And a lot of questions that you can ask about Bitcoin can only be answered in speculative manner. But some things we can already answer either with a very factual manner and some with not factual with quite high degree of

certainty and i think the mining is one of those where you can quite confidently say what we've seen for the last 10 years we're going to see for the next 10 or 100 years which is mining will always be a bad business in aggregate meaning more investment will in will go in than revenues will come out that has been the case for the last 10 years. And the incentives are so that it's like Vegas, and it will keep going on like Vegas. It's like an aggregate, people lose money, people focus on the guys that win, that keeps driving people in. And on aggregate, the miners are spending all of their winnings paying for the electricity, which is what makes me very bullish about Bitcoin, that it will cost more than $6 billion to secure the Bitcoin blockchain this year.

And without that, I would not be saying all of what I'm saying here. I am confident that Bitcoin can succeed because of the $6 billion of electricity, not because of the electricity per se, but because of what it means in terms of hashing power and what that hashing power means to trust the because of the electricity per se, but because of what it means in terms of hashing power and what that hashing power means to trust the integrity of the blockchain. So at the very core, what we owe the integrity of that blockchain to the miners. I would not want to be a miner, but thank God they exist.

Awesome. So I want to thank Wences very much. Thank you for being with us today. It was a fascinating conversation. And I really appreciate hearing from you and this very unique perspective you have on one of the most interesting things happening in tech. Thank you for having me, Kevin.

Awesome. Well, thanks for joining us for Behind the Tech. You just listened to Microsoft CTO Kevin Scott speaking with Winsys Casares. And Kevin, I really loved that conversation that you had with Winsys. And I thought it was really interesting, his point about how you really have to have a need to get into blockchain and Bitcoin and not just to do it because it's the next new thing, because you might as well just use a database in a lot of cases, right? Yeah, I think that's one of the things that confuses a lot of people. Blockchain is really a fantastically cool technology. It solves a whole bunch of problems simultaneously, but it solves them in a bunch of different ways with non-trivial cost. Securing the blockchain, for instance, just requires a ridiculous amount of compute power.

And the net of that is that you really do need a very good reason to use blockchain. And like the reason shouldn't be, oh, this is just some cool new thing. Because a lot of things that people want to use the blockchain for, you can do just as easily with a conventional cloud database. So the thing that cryptocurrencies really need from the blockchain is this whole notion of sovereignty. And, you know, like I think Wences talks about it very eloquently, having the ledger of all of these Bitcoin transactions stored in this sort of sovereign database of transactions is really, really powerful. It means folks can't tamper with it. You can't have governments, you know, doing what governments sometimes do in creating

runaway inflation by just sort of arbitrarily issuing more currency. The system has a set of rules that everyone has agreed upon. And this sort of sovereignty mechanism is like this binding contract and the mechanism that sort of makes it this independent thing that whether you or I want to, we can't change the way that the system is structured. No, definitely. And I think kind of goes back to what we were talking about at the beginning of this show,

which is, you know, given Wince's background, where he's grown up and seeing what he's seen, he has an even better understanding of where this can be really useful and where it maybe can't be and why that sovereignty aspect, like you said, is so crucial. Yeah. And it's one of the really interesting lessons, I think, with some, actually many really great technologists and entrepreneurs, the thing that they end up doing and sort of passionately pursuing sometimes has these roots and these really profound experiences that he had. And like, you know, as you heard in the interview, Wences just sort of as a Argentinian experience what can happen in these sort of hugely tumultuous economic situations that Argentina experienced multiple times.

And so, like, this is a technological way for someone to try to address that problem and to not just solve it for themselves, but to solve it for, like, a broad class of people. And I think it's just super cool. I totally agree. All right. So, I think that's it for the show today. Thank you so much for joining us. Be sure to join us next time on Behind the Tech.

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