On The Brink with Castle Island - Pat Larsen on making taxes easy for cryptoassets (Ep.94)

Episode Date: June 24, 2020

Pat Larsen, cofounder and CEO of ZenLedger joins the show. In this episode we discuss: Pat's entrepreneurial journey and the path that led him to start Zenledger The current state of cryptoasset tax regulation Perspectives on emerging consumer use cases and new applications for cryptoassets To learn more about ZenLedger visit their website and to receive a 15% discount on your tax prep this year use the coupon code "Castle15"  

This week's episode is with Pat Larson, the co-founder and CEO of ZenLager, a software company that automates tax preparation for crypto assets. We're investors in ZENLger and I'm a big fan of the product. I wanted to have Pat on the podcast to talk about the current state of play as it relates to the IRS treatment of crypto assets and talk about some of the challenges that are faced by investors and users of these platforms. Pat is a former Navy pilot who previously worked in investment banking and then for Amazon prior to founding ZenLager. He's a deep thinker, and I always enjoy catching up with him in our conversations. In this episode, we discussed a range of topics in addition to taxes, including Pat's views on the history of money, his perspectives on crypto opportunities in the world of gaming, and the adoption of stable coins.

And don't forget, the tax day is July 15th. So for those of you listening to this podcast, who are interested in using Zen Ledger, you can head over to Zenledger.io, and you can use the coupon code Castle 15 to get 15% off. So without further ado, here's our conversation with Pat Larson. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac,

the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of constituted easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. All right. Welcome to On the Brink and I'm with Pat Larson. Thanks for joining the podcast, Pat.

Really good to be here, Matt. Thanks for having me. You can tell that you are used to operating on a lockdown here. You have a really good setup here. You have a microphone. I can tell that you have taken a lot of customer calls from your quarantine bunker. Absolutely. I mean, we built the company remote from the start and we've had customers all over the

country and team members all over the country. But being a former pilot, I'm like totally used to having a headset on. Well, that's actually a good way to start what was going to be my first question is, you know, before we get into talking about Zen Ledger and all the exciting things around tax preparation, why don't we talk a little bit about you and what led you to start Zen Ledger? So could you give us your background? Yeah, sure. I grew up in Los Angeles, went to the Air Force Academy for undergrad and studied chemistry there, and then was in the Navy as an officer and a helicopter pilot. and did a couple tours as search and rescue and combat medevac mission commander. Got my MBA at University of Chicago and was an investment banker for a year at a M&A shop.

And then have been in tech for about eight years now. I worked at Amazon and a couple startups and founded Zen Ledger at the end of 2017. Well, thanks for that background. At what point in your career did you become aware of crypto? Do you remember when it was that you first heard about Bitcoin or crypto assets? I'd probably been reading articles about it in 2013, 2014, because I just followed tech and finance a lot. 2017, it became kind of inescapable with ICO boom and asset value booms that it was a very interesting frothy space. And if you're looking to start a company in fintech, you should seriously look there.

So what was it initially that drew you to it? I mean, obviously the ICO boom was kind of crazy in the sense that there was a lot of capital being raised, a lot of unregistered securities being offered. what was it that initially told you that this was going to be around for a while and wasn't just a flash in the pan? Yeah. So as I was coming off an e-commerce startup and working at Amazon, I kind of wanted to go back to the forefront of technology. And I like thinking about where are you top 10 percentile in two disparate fields? And that's where you should focus, rather than trying to be like top 0.1 percentile in a single field that's really tough. So for me, it's like fintech or finance tech and then just entrepreneurship. As I was looking for, ideas in 2017 and I just talked to a lot of people in crypto and I really like them. All the entrepreneurs

in crypto are very divergent thinkers, very interesting. I've always been the same way. Though I'm not like the Burning Man type, I always get along really well with them. And so as I dug in and looked at the use cases and trying to figure out where the infrastructure plays here. I don't think I'm an ICO guy. I don't think I'm an issue of token, but I want to help build, you know, the infrastructure in the space because I think it's growing fast. In 2017, there were tons of retail people coming in. And then there was also a lot of regulatory pressure. SEC and the IRS were looking at things. The IRS was suing Coinbase and subsequently won. And I just saw that with taxes as an idea, it was an idea that could fit in a box. Like I could fully conceptualize it. I knew we could execute on it. I knew there

were big headaches. The initial people I talked to that ended up becoming our angel investors were spending tens of thousands of dollars writing their own scripts. They were tech savvy and finance savvy and they're engaging with lawyers and CPAs and they couldn't figure out this problem. So that's a classic SaaS idea, something that's being done in Excel, that's messy, people who are writing their own code. They're spending a lot on professional services. That's where you build SaaS. That's a great story there. And then how did you link up with your co-founder? Yeah, just through Stairner Networking. So we met Brian Starbock, our CTO, through a friend of a friend. Brian got the idea right away. He'd built a ton of startups himself. He'd spent 10 years at Microsoft,

was on the AirN Explorer team that killed Netscape and then was on Windows security hardening teams. and has had like three solid exits where he was the founding CTO. And he was like an initial investor in Ethereum or very early on had an Ethereum t-shirt. And he just, he got it. He loved the idea. And, you know, we're off and running. So I know that you're a big student of history. And a lot of times when we talk, we're discussing a book that one of us has read over

the past month or so. So I'm curious to kind of frame this question in the sense of you read a lot of history. And you're having to explain this concept to people. around what is crypto assets. And that can take a lot of different, depending on how you come at it from, you could get into the history of money and what is that. You could talk about the history of computing and how various computing platforms are going to work. You could think about it through the history of different asset classes. So tokenizing other kind of assets and moving them around easier. And there's a financial plumbing angle there. So from a historical reference point, where do you

ground yourself when you're talking to people that maybe don't know that much about this industry and trying to just get it for the first time? Yeah, yeah. I think one of the big picture history things I like to think of, especially since I have a background in chemistry, is that there are things that would be true whether or not humans existed or not. And those things are math and physics, stuff like that. And then there are things that are only true because like a certain species of ape competes for resources and tells stories about self and studies itself. Those things include economics, history, politics. And so what money is, is something used uniquely by humans, and for the most part. You can argue about that with grapes and beans and other primates.

But I'd say, like, if you're trying to think about things very simply, what is money, it's just like an agreement between two people. Like, you have time and expertise, and I'm going to give you kind of a placeholder that says, like, I'm delivering a service or my time or expertise to you right now. And we should both remember this. And later, on, if you ask me for something, we'll respond in kind, right? That's really all money started out as, you know, debit credit. I don't think economies started with barter because they started with families and tribes. And if you think about your household, you don't barter in your household. You do debit credit in your household. And so the way I think of cash in the United States, US dollar,

is it's backed up by the United States government. The United States government is backed up by the natural resources of the country, including its people. And what Bitcoin is, is it's a gold currency that's backed up by scarcity enforced by math, and then the full faith of the people who decide to use it in the same way that art or gold or diamonds or Pokemon cards would be. Pokemon cards, I'm less into, maybe baseball cards and more of an analogy. I'm trying to appeal to the younger audience here. So I guess digging into that a little bit. So you sort of explain crypto assets starting from the concept of money before you get into

some of these other use cases around decentralizing the. notion of a data monopoly or disrupting Google and Facebook with some sort of an incentivized framework. You kind of start from that baseline of what is money and then go from there. Yeah. Well, I'd say the initial attraction is on the money and the speculation part. It's very clear that people are using cryptocurrency to move value around the world to do some transactions and then to speculate on the asset. I think where cryptocurrency may do the most good is probably in secure public data. So my voting history, my medical history, my credit history,

I haven't consented to giving that to anyone, and yet everyone has it. And I think it would be much better if when I showed up to the hospital, they scanned me. I only show them the medical history that I went to at the time, and I ingested it back in. Same thing with credit history.

No one's collecting credit history on me. The make of my first car and the street I grew up in isn't hacked eight times a year and sent out to everyone and posts on the dark web, it's owned by me, right? Yeah, yeah, I think this idea of data as an asset in and of itself is a powerful one when you look at some of these use cases. But I do agree that it starts with from this idea of sending value and holding money

as a bearer asset on the internet for the first time. Yeah, yeah. It was natural. Like, obviously money is digital. And obviously it gets sent around the world instantly already. And so it would just make sense that there would be innovation in that area. And so from your perch, we'll talk. talk much more about Zen ledger and what you're doing, but just in the sense of looking at these other

assets that exist, obviously there's hundreds of them. There are some that are competing to be cryptocurrencies, that are some that are competing to be tech platforms that have a token attached to them. There are also some that are essentially backed by hard assets. You know, they might represent a bar of gold in a warehouse, or they might represent physical property or something like that. Which ones do you think are the most kind of interesting, both now and on a longer term time horizon? Yeah, I think reducing transaction costs and friction is where you're going to have your impact, right? So it depends on what situations you're trying to solve for and what people are currently doing and how quickly they can adopt the new thing, right? So like some

people love gold, I think gold's pretty valueless. If we're both starving and I have a sandwich and you have a brick of gold, the only way you're getting that sandwich is if you hit me over the head with a brick of gold. It's about relative value at time, right? So I think in terms of where we can see adoption here, I think, like, international deals make sense where you're buying a house in another country. The problem is the last mile, right? So disrupting Western Union makes a lot of sense, except that in Latam or Africa or wherever where you're getting charged a 30% premium, you still have to pay for your rent in the local currency. You still have to buy food in the local currency. That changes a little bit. We're watching what local Bitcoins does, but that last mile

is really difficult because countries still have, through monopoly violence, the ability to enforce the use of their fiat currency locally. Yeah, yeah, well said. So let's talk a little bit just about the tax landscape. So this has been an acute pain point for just about anyone who's been in the industry that has ever attempted to pay taxes, collecting what your cost basis is and just figuring out what you owe or what you are owed, I guess, is just tremendously difficult. So how did you guys go about just framing that as a problem that you could actually build a business around? Yeah. So, I mean, this is a good lesson in startups. So our CTO, Brian, is fantastic at architecting and getting things up and running. So we had an MVP up within 10 weeks. You know,

we grabbed six APIs and said, hey, this is going to work for those six APIs. And it's free. So we got to like learn and test in April of 2018 as we're entering a crypto winner. So it's kind of a startups are hard and startups are finance markets are frothy. And we've had exposure to all of it, right? But the core problem we're solving is that a cryptocurrency trader, investor, you're going to be on multiple exchanges. You're going to have your wallet. And the information's not going to be easy to bring together into one place. And you're going to start at Coinbase.

You're going to move over to Binance and Hobe. you're going to move on to your treasor, you're going to get into an ICO, some of it's going to get lost. None of it will be priced in U.S. dollars as you move around the world. And then you're going to have to produce an A949 and a Schedule D and put on your 1040 with a short-term, long-term capital gain or loss, with a cost basis preserved all the way from day one the first time you turned cash into crypto. And so we do that for you. We do it through just rigorously using APIs, CSVs, consulting with CPAs, and tax litigating. lawyers on the right way to do all this, just present it in the best UI, you know, UX we can

with really friendly customer service. And that's kind of the whole thing. And so talk about what that customer experience is like. So you log on to Zen Ledger and how do you get all your accounts visible and how do you figure all this out? Yeah. So you can only start with chat, email or phone with our customer service and they'll help you through. We have customer service articles and videos. But basically what you do is you just create your login and then you start connecting your accounts. Sometimes it's a single click like with Coinbase. Sometimes you have to go in to a wallet and download your public receiving address. Other times, like if there's not a good way, just type it into a spreadsheet or ask us. Like we've had people send us a screenshot of their Jacks wallet with their transaction history and we'll type it in for them because like we're just trying to like get over that last mile for you. And so let's talk about just what is the current state of affairs as it relates to how in the United States, the IRS, think, about crypto from a tax perspective. What is crypto in their eyes and how is it taxed? Yeah. So it's a mixture of property and capital asset at this point, I would say. It's not a

coherent framework. And you get various guidance starting in 2014 through 20, and some of it's been better than others. But what you see is the IRS has taken a pre-firm stance that your capital gains made from cryptocurrency investments are taxable and they need to be paid each year. And 2019 is the first year of tax reporting where you have to affirmatively declare that you own digital assets. And that in itself is just a black and white yes or no question on a tax form. So that should tell you a little bit about where things are going in terms of how serious the IRS is in monitoring things. You do see the SEC bringing action against the scammiest of the scams, which I think is a very good and healthy thing. The IRS sent out tens of thousands of warning letters

to cryptocurrency holders basically based on their 1099Ks last year, which was basically saying, hey, we know you did a lot of trading, you really should consider how accurate your tax returns are. That's basically what the letter said. And so you should expect those things to continue as well. And so from the perspective of having Bitcoin and other crypto assets being treated as a capital asset that's treated like property, this obviously presents some challenges if you're using these things on a transactional basis. So do you think that, and I know the Coin Center has done some work around this, you know, around there being a de minimis exemption, I think that they had proposed $600.

But if you do go out, you want to buy that proverbial cup of coffee with Bitcoin, that's a taxable event, which is not great. I mean, that's not going to help adoption for some of these small value goods. So do you see that changing? Is that something that we can expect to see some forward progress? Yeah. I mean, so you think with the digitization of assets and taxation, you would just have like these different tax events, right?

So if you go with your Bitcoin card and you swipe at Starbucks, it says this is treated like currency, no capital gain. And then if you go and you trade that Bitcoin for Ethereum, it says, oh, this was capital transaction. There's a gain or a loss here. It does get messy with cost basis. What buckets are you drawing from here? And that is, I'm sure there's a solution to it. It just has to be worked out. But if you're going to use, in the same way you use dollars in that way, like if I use,

a dollar to go buy a cup of coffee and then I go use a dollar to buy a stock, a public equity, the tax implications are treated differently, even though it's the same underlying asset. Yeah, that's a good analogy. Where are we as an industry in terms of just pushing for clarity on these issues? Are there groups out there that you would recommend folks engage with or support in order to kind of push some of these discussions forward? Yeah, I mean, so where we are is in fits and starts, you will get authorities issuing some guidance and clarity, such as the SEC, the IRS, they'll give that clarity through statements they make or through legal actions they take, right? But the other thing is that our Congress has to pass a law and then the president has

to sign into law. And then the enforcement agencies need to take that law that has now become policy and enact it. And that chain is broken. And it's very clear right now, we're in a very tumultuous economic and political situation. And I just think there's no way that comprehensive crypto regulation taxation bill gets passed before November. number 2020, right? So we're just going to stay in this area where what you need to do is you need to realize that tax reporting burden is on you. You should make your best faith effort. You can choose to be conservative or aggressive in your tax strategy. And you can always restate it in the future. We had one customer who was early at Coinbase, early employee at Coinbase, number 30. And I actually,

I flew combat missions with him in the Navy as well. And he restayed his taxes and found that he'd overstayed his taxes by a quarter million dollars, really financially savvy. guy and used our software and was just like, oh, geez, like there's a lot I ever paid by. We have another customer who restated his 2017 taxes for the third time. And after the third time he resated it, you got a letter from the IRS criminal investigation division saying, hey, thanks for restaying your taxes. We had a criminal investigation open on you. We're going to close it now because we see you're a good guy. And they don't tell you that the criminal investigation is open, but they do tell you if they closed it, which is nice. But it just goes to show you that

there's a lot of frothiness out there. And if you've made a lot of trades, You need to have software take a look at it because it's too complex for a regular person and take a look at it. Even if you're a CPA, if there's hundreds of trades, you really should have software tackle this. And you should know that the regulators and enforcement agencies are looking. They're watching. They're looking at people with the highest transaction volume that they can see on public chains and they're making subpoenas and things like that because they're looking for tax evasion. They're looking for international asset movements. They're looking for lots of things. And you should just know that right now, you're probably not going to get more clarity.

but you should just on the safe side, file your taxes, have a CPA look at it if that's within your means, and then be open to refiling in the future if you think there's a reason to amend. Yeah, that's well said. How do you think about these various venues where people might be doing these transactions? Some of these platforms are offshore. They might not be regulated. They might not be around in a year or two. Some of them you might have had customers that are interacting on platforms that already don't exist. So how do you think about that as a complex? that you can help solve. Yeah, a number of our customers have had funds tied up in Cryptopia or Mount Gox.

And you kind of have to make a plug, right? You have to show like, hey, I sent five Bitcoin in. I never got five Bitcoin out. The price of the Bitcoin at the time I sent it in was this. And then, you know, you make an accounting plug. There's very standard accounting treatments for the loss of assets. There's very standard treatments for, hey, I made a Tron to Ethereum trade on Binance two years ago. It was near price and dollars.

Let's go and use Zen Ledger, and we have like five pricing APIs we're running all the time, to just go get the price for you. And if you want to adjust that price, you can. You can manually adjust it if you want to. And then you can use different various accounting methods, last in, first out, first in, first out, highest in first out, individual lot of identification or software will let you do any of that. So you can be very conservative, very aggressive. You can let the software do all the work and automate it for you, or you can really

dig in and make individual edits and judgments yourself if you. you want to. The biggest challenge is getting it all in one place and reconstructing it in your head because most people were, it was just Wild West and you're just making trades left and right, and you lose a wallet or you forget your login to Metamask and all these things, right? So just getting as coherent and comprehensive transaction lists as possible when you start is really important. And then you can restate past taxes. Now the next year of taxes is going to be much easier for you, much less stress. And that's the most important thing, right? The tax compliance is not the reason you're in this game and you shouldn't be spending that much time or having that

much stress about it. Yeah, yeah. One of the areas that's probably going to become even more complex is just the range of different crypto assets that exist. And so it's pretty early days for this still, but non-fungible tokens within the context of games is an area where this technology, there's a lot of startup activity, right? There are a lot of teams that are proposing to build games that within that game, they're provably scarce in-game assets that are represented on public blockchain. So the example I always like to give is just imagine being in the game and being able to buy a sword that's provably one of five. Now, the interesting thing is that, you know, if that's built on top of Tezos or Ethereum or, you know, one of the smart contract platforms,

that's an asset, right? I'd have to imagine that you'd have to pay taxes if you're buying and selling that video game asset. Is that your understanding? Yeah, it is. And I think it's very interesting because you turn your time and labor into a valuable asset and then you sell it in some currency, right? You could be anywhere in the world and you're playing World Warcraft or whatever game and you keep playing until you get that great item drop and then you can sell it if you want to because there's a demand for it. Because again, it's a token that you've spent a lot of time and got some luck. That's every asset in this world, right? So yeah, like if you, if there's a market price for that item at the time it drops. It's very clear that the market price all around the

world is $100 for that sword. Then at the time of that drop, you've basically made $100 of income if you sell it. I think it depends on the country and exactly how you characterize this if it's income at that time or only when you sell it. And I think there's some laws here that will kind of dictate like what digital assets are considered income and capital. And the IRS actually had to recently clarify that kind of took off some of these gaming coins that have zero value when you check that box in the 2019 tax return. So it's still something very much in flux. I would say it depends on how much money is being made by how many people, whether the IRS will care about it or not. Yeah, I guess you could take this thing to a pretty crazy conclusion when you

talk about some of the, like think about Chuckie Cheese tokens. For instance, you know, if you sell a Chuckie Cheese token, I guess is that a taxable event? You could take this in a lot of different complex ways. But to me, it will be interesting with the game developers, because this is just a huge market. I mean, outside of crypto, this is an enormous addressable market. And this happens to be a really interesting product market fit for crypto. So I think we'll have to see more adoption. My guess is that you're just going to see wallet providers that integrate with Zen Ledger,

and this will end up being pretty easy. But I'm not sure if it's pretty immature, I would guess, at this point. Yeah, like back to baseball cards, right? They're verifiably rare. They're highly desired, mostly because they're rarity. You can't really, there's no utility in them. except for the perception of value and rarity by other people that you can sell it to, right? And that's the same thing with non-fundgible tokens on various protocols.

It's just like as humans spend more time and energy in these digital areas and desire these rare assets, they'll have value. Like I love art, but I can't really do that much with, you know, Rembrandt oil painting. I can look at it for a little while and then I go away, right? But someone says it's worth $100 million, but there's only five people that think it's worth $100 million. And they're all willing to pay $100 million. and then there's just zero people after that. They're willing to pay that much.

And that's just a lot of assets in this world. Yeah. No, that makes a lot of sense. So in terms of just compliance, what's your sense of the percentage of people that are buying crypto on a regular basis and actually paying their taxes? Buying and selling and actually,

if you had to guess, what do you think the compliance rate is? I would say it's still under 10%. I think part of that is education. A lot of people just think, that they don't need to pay taxes on crypto. The next is compliance. A lot of people just think that no one cares if they pay taxes on crypto.

And then third is I think a lot of people just have very minimal gains or minimal losses or minimal assets in crypto. And therefore, there's just not much reason to go through the rigmarole of complying. So I think those three things kind of drive compliance below 10%. But as you see Coinbase and Gemini and Cash App and Robin Hood and the CME and Private wealth advisors, whatever, like constantly looking at this asset class and institutions starting to put money in that's going to stay in for a while, you'll just see more people with more significant assets and more of a reason to comply and more of a reason for regulators to be interested in compliance.

One of the things that could really spur adoption here over the next few years is Facebook's Libra effort, and I guess just stable coins in general. So the ability to have an asset that is peg to the dollar or peg to a fiat currency of your choice, that will spur a lot of wallets in people's hands, whether that be WhatsApp or other types of product distribution. What do you think the impact will be on the industry, I guess, and then secondarily, how will these things be treated from a tax perspective? So distribution is the key, right? So if any large tech company decides that they're going to have this digital medium of exchange, then that That's going to help a lot. Facebook has billions of users. It's well trusted. It can distribute at scale. It can do all sorts of experiments in data monitoring and tune this thing. You see that there's a huge regulatory component with senior edge, right? And so it's very iffy what the final version of Libra is going to look like. But I think that as this happens, then regulatory agencies will have a very rigorous reporting and taxation framework. The EU very much cares about that. The United States very much.

cares about income and capital gains, taxes, and those things just aren't going to change. And they have the ability to force Facebook or Google to care very much about compliance and regulation. With stablecoins, are you seeing more adoption for people on your platform that are using stable coins for their day-to-day crypto interactions? Yeah. So you do see that. And you can just see the public metrics of the movement of tether and other stablecoins, right? There's clearly a large amount being used and a lot of people want to short their local currency, right? There's a lot of countries in the world where the local currency is absolutely horribly managed and constantly loses value. And it's a fantastic thing to get some of your assets into crypto and into dollars. And stable coins are like a

really frictionless way to do that. And so I think there's a lot of hedging and value transfer going on stable coins. I think it's a use case that's not going away anytime soon. I think it's very interesting that the dollar stable coins have been so popular and there's just like zero use in any other fiat-backed stable coins. I think that says a lot. Well, I guess what it says to you is just that the dollar is, as I like to say, the apex predator of money right now. I think you have an insatiable appetite for, as you say, people to be short their local currencies. And so if you're getting paid in a local currency that you don't have a lot of trust in and you want to be able to get out of that, then now for the first time ever you're able to do that type of a transaction directly on a smartphone.

And so you can go and you can meet someone physically to sell you these type of assets on things like local bitcoins. It's just kind of a brave new world in terms of people's ability in some of these jurisdictions to be able to just participate in the dollar banking system as opposed to their own local system. Yeah, I think people are savvy. It's very hard to survive in this world and it's very hard to survive in this world in a collapsing political and economic state. And so you're probably pretty sharp if you're navigating these waters and you understand that you want to not lose value in the store value you're holding, the currency you're holding. And so you instantly want to change your local currency into an asset that's appreciating against your local currency. And that's what

people are doing. You see it with professionals, right? There's tons of contractors who are taking payment in dollars and cryptocurrency and they're based in Eastern Europe. or South Asia or Southeast Asia because they know that why take payment and a depreciating asset versus an appreciating asset. It just makes sense. So as you look just at the industry in general, where do you see the next leg up in growth coming from? Is it coming from institutions getting into the Bitcoin side of this? Is it coming from smart contract platforms, disintermediating the tech firms? Is coming from physical kind of security tokens? What are you the most bullish on right now? So I like to surf waves. I have no idea how to make waves, right? So I'll just like kind of stand on the beach, stay out in the ocean and look for the right wave to ride. As we develop technology, we place bets. And we're looking at NFTs. We've talked to STO exchanges. We made sure we integrated with all the crypto assets and different blockchain protocols and stable coins because we honestly have no idea who the winners are. And we're just going to let the market go there. In terms of where I think the winners will be,

I still have no idea. We've really only been innovating in crypto for three years now with any significant capital and human resources, right? And so it just takes a long time to build things and for people to figure out what's going on. So, like, I have no crystal ball here. I'm not a VC. I don't place my bets like that. And I'm sure you're seeing a lot more interesting use cases than I am. But I don't see a clear winner yet, and I don't think anyone does. People are making their bets and they're convinced that what they're doing will be an incredible winner. has a chance to be. But we've just seen very slow adoption in terms of like real estate, STOs, NFTs, like they've all just been slow to adopt because of high friction and very small addressable market. Because if you sell real estate, you still have paperwork in the end, right? Like down at the county level and all that and transferring deeds and things like that.

But these aren't new problems. And I think that technology can improve on all these areas and improve the transaction costs. And the hope is like a small country solves it, right? Like a Singapore or a New Zealand, a really forward-thinking country does it. There's hope that Argentina adopting Bitcoin would be a spur of something or Venezuela and Latam. So there's just a ton of experiments going on in the world. And there are a ton of people and a ton of financial resources going into this. So I think a lot of good will come of it. But I just have no answer of like, what's that thing that 10x is the value in the ecosystem in the next like two, three years? I have no clue. I like that surfing the wave analogy. I might need to steal that for me. Talking a little bit about

how you've navigated just operating an early stage company. So you're based in Seattle. I think a lot of the team is based in Seattle, but you're essentially a remote first to begin with as a company, which probably was a little bit more controversial until a few months ago when we had COVID, right? So now everyone is remote. But talk a little bit about managing a remote team and what, if any changes have come as a result of this pandemic? Yeah. So I would say that it cut down travel a lot. It cut down the perceived pressure to meet in person.

And you just do the things you need to do over a video conference or phone call or email or chat. And that's all been fine. I found that if you don't have leases and you don't restrict your hiring pool to, you know, an arbitrary commuting distance from that office, you can just hire really great people, right? and you can be in different time zones, which is important because we have a lot of customers on the East Coast. So I feel like I'm a good leader, but a terrible manager. And so I've hired people who can manage themselves and actually are great managers. And that's like plug the hole for myself.

So it's just something to think about there. But we communicate well. We touch base. I make sure that we have open lens communication. There is certainly something missing from not sharing space with people and sitting around and chatting and trading ideas. But remote work also in some ways is easier to manage because it's impossible to hide. You absolutely know if someone is effective or not very quickly, whereas in an office environment, we all know that a lot of times you can kind of hide.

There's things both ways there and it's just you can do it effectively. It's just a bit different and you do have to figure some things out on your own and you have to be very specific in the practices you're doing your communication style and who you're hiring and the expectations. I'm sure you dealt with it in the fundraising process. questions just around are you ever going to centralize, are you ever going to become a company that is all in one location? I think historically some of that has been driven by just pattern recognition by the capital providers, right? So the VCs haven't seen a lot of billion dollar outcomes from companies that are remote first.

But it's been difficult to be remote first until fairly recently, just given the suite of technologies to do it. So do you think that this is in some way going to be an accelerant towards more companies having that remote first angle? Yeah, absolutely. I think there's a correlation causation thing there, right? So if your pattern is, every successful startup I've seen that started a remote, once it got to 50 people, they coalesced. That's just what happened previously, but it's not a great predictor of what will happen in the future. And I think you're going to see a lot of people trained to work remotely. Like you're going to get a lot of Twitter, Facebook, previous founders, and they're just going to start remote teams too. And they're going to get funded. And a good amount of those will be successes. And you're going to get funded. And a good amount of those will be successes. And you're going to get you're going to see people incorporate talent from around the world, right? Like, oh, my UIUX people are in the United States and Eastern Europe and South Asia or my developers. You know, I got a great sales guy in Columbia and things like that, right? It's, I think you'll see enough success stories in fully remote companies that it'll become a thing as well. And what is your people talk about Zoom as if it's the only tool that people use to manage their remote teams?

What are some of the tools and services that you find to be the most useful? as you manage your team. Our tech stack is any sort of video conferencing that's needed. So that's generally Zoom, but it can be Google Hangouts as well or FaceTime on your phone, any sort of audio communication you need, whether that's phone call or Zoom as well. And then we use Intercom to chat with our customers as well as email.

And then we use Slack internally. And those things are all really useful and you just hop in between them almost frictionlessly. It's messy. I will like send a Slack and email. and a text sometimes if something's urgent, but it really only takes me an extra four seconds. I don't think we're unique in that way, and we haven't figured out anything. We have no secret communication sauce for sure.

So given the pandemic, there's been an impact just around filing deadlines for taxes. So talk a little bit about how that worked out this year and what impact, if any, that's going to have on your business. Yeah. So we are literally in unprecedented times in many different ways. And one of the more mundane, boring ways is that the tax deadline got moved from, April 15th back to July 15th. So in case anyone is unaware, you need to file your taxes by July 15th or file an extension. Regardless, you do have to, if you owe the government money, you have to cut them

a check on July 15th. And then you can file the paperwork that proves that you owe them money after that. But you can't extend your payment without penalties. So that is another part. That's like an additional factor in education and compliance. That's a little iffy. If people have seen their real estate or the stock market holdings or the crypto holdings go down, they're less likely to feel the need to pay. But we've had credible volatility and asset prices go down and then back up. And so it's very likely that opportunistic traders have done very well in this environment and probably have some capital gains and maybe have harvested tax losses as well. So a lot of our most savvy customers actively use tax loss harvesting to offset their gains

with trade losses in equities and crypto. And so do you think we're going to see people just procrastinate until the 14th here? Is that how it typically works? I think we saw a lot of people in November through March, right? We were growing very fast. And in the third week of March, when the asset prices and coronavirus went crazy and the tax deadline got pushed back, all of a sudden there's no need to pay taxes on April 15th. And we've seen things dip, but we're having a better May and June than we had last year because it's complete apples and oranges now. It's a complete different tax environment. But we have a bias in our customer base too, right?

The people who most want to pay taxes for us are people who have assets already. They're used to compliance. They have a lot to lose. And they have a 401k in a house and an LLC. And they're not going to let $10,000 of gains or losses in crypto trigger an audit that's going to make them dig through all their other stuff. They're just going to go ahead and comply. Yeah, that makes a lot of sense.

So, Pat, where can people learn more about? Zen Ledger and try the product. Yeah, just go to Zenledger.io. You can just chat with us, email us at hello at zenledger. com. We're just always happy to chat. And you can find me at Twitter at Patrick Larson, L-A-R-S-E-N. But we're happy to help.

We have great customer service. It's a very stressful time for everybody. And we're here to make things go as easily as possible for you in getting your finances in order and maybe getting a tax refund. No one needs anything additional to worry about these days. Well, you guys are doing a great job in making it easy for a lot of people and appreciate you joining the podcast. Thanks so much, ma'am. Thanks for listening to another episode of On the Brink with Castle Island.

To find out more about Castle Island, visit castle island. Visit castle island. To listen to all of our podcast episodes, please go to On the Brink dashpodcast.com or just click on the tab in our website. Thanks for listening.