The a16z Show - a16z Podcast: The Five Stages of Bitcoin -- Disdain, Dismissal, Curiosity, Oh F**k!, and Acceptance

Episode Date: April 23, 2015

Bitcoin has not been easy for Wall Street and other traditional financial centers to wrap their collective heads around, let alone take seriously. But that has changed recently, argue authors Michael Casey and Paul Vigna in their book The Age of Cryptocurrency -- How Bitcoin and Digital Currency are Challenging the Global Economic Order. The two Wall Street Journal writers join the a16z Podcast to talk about how far bitcoin has seeped into the Wall Street worldview, and more broadly, into the fabric of the global economy. Casey and Vigna describe the five "stages" of bitcoin conversion from disdain to obsession, and why, with the failings of our financial system still painfully fresh, the bitcoin blockchain could be a tool to help rebuild trust, governance, and faith in the power of currency post-recession. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Welcome to the A16Z podcast on Michael Copeland, and we are lucky enough to have today with us Michael Casey and Paul Vena authors of the recently released, the age of cryptocurrency, two Wall Street Journal journalists. So welcome, guys. Thanks very much for having this, guys. Also in the room is my partner in crime, Sonal, Chuxi. Sonal. Hi, guys. Look, the Wall Street journal has the words Wall Street in it, and Wall Street hasn't been paying much attention

to the world of Bitcoin and cryptocurrency until recently. And I wonder from your ends, did you have a sort of conversion where you thought this is actually something I want to spend a lot of time and effort and energy focusing on and writing about. Yes, absolutely. There were these moments. In fact, we go through it in the book. We codified it. There's these phases.

And in fact, we realized when we sort of came up with this, this is Paul's framework. But ultimately, we've realized as we do this, these five stages of Bitcoin, as we call it, that that's actually something that a lot of people go through. It seems to be actually a fairly common thing. Yeah, I mean, it definitely happened for me. It definitely happened for Mike, where we went through a process. of the first time I heard about Bitcoin, I was skeptical.

I thought it was a scam. I thought I wasn't going to write about it. But you keep hearing about it. You keep getting interested. And I went through this. Mike went through it. And we talked to a lot of people that we interviewed for the book,

went through it too. And I realized that it's almost kind of, you know, it's like the Koubleu Ross model, the five stages of grief. So we wrote about it in the beginning of the book. And the stages, it's, you know, it's dismissal. It's, it's disdain.

Your first one is disdain. disdain dismissal curiosity the fourth one is actually the key the fourth one is the aha moment the eureka moment and we played around with I wanted to call it the oh fuck moment

because to me that really sort of encapsulates it once it hits you that light bulb goes off and that is literally what I said you know to myself oh fuck like this is like you realize

how big a thing this is and that's the real critical one and when people get to that moment we interviewed people who said I stayed up for three days just reading every single thing I could online. I couldn't sleep. The idea becomes very, very,

it becomes huge in your mind and then just acceptance. You accept it. You realize that this is a real thing, a real big thing and you want to be part of it. Where do you think Wall Street and some of the other, because you are coming from the Wall Street Journal and your backgrounds and your careers, like where do you think Wall Street falls in this adoption curve?

Wall Street, of course, is a huge, amorphous mass of people. but if you were to kind of collectivize the thinking I think they're possibly on the border of they're not at the old fuck moment no I don't we're going to use that we're going to use that phrase all the all the way through the process now you've done it haven't you Paul it's going to be the oh fuck

you wouldn't let me put it in the book I would no I got all prude on him but ultimately I think that they're at the third stage I think there's somewhere and I think we are certainly we've certainly seen a number of key players on Wall Street go through the fourth and are probably at the fifth acceptance stage, which is really what's interesting right now, to your point, Michael.

Really, they weren't paying much attention at all until we get to really 2015. And we've started to see, you know, the big announcement in January of the New York Stock Exchange participating along with, of course, Andrews and Horowitz, in the next round of funding for Coinbase, that was a big deal. That was like, this is a, you know, iconic Wall Street institution that has decided that it needs to participate in this form of the future of money. And then you've seen so many others. I mean, we had in similar rounds.

I think it's the same rounds, right. You had the USAA, you had BBVA, a very, very big Argentine family, Spanish bank. And then, you know, NASDAQ are kind of cooperating with technology with noble markets. You know, we've seen some important names. Duncan Niderow, who used to be the NYC president, working with Terrar Exchange, the derivatives, a Bitcoin derivatives company. Vikram was in that round. Vikram, Pandit, former city group CEO.

You've got Blythe Masters, who was the inventor of credit default swaps and really quite an institutional name in her own right from JP Morgan, ex-JP Morgan. Now the CEO of Digital Asset Holdings, a very interesting company doing back office settlement over the blockchain. You know, the names keep coming and coming. And it was really funny that before that announcement, we were. would, people, I started noticing more and more people from here coming through New York. You know, Wencesis just happens to be in New York. Dan Moorhead just happens to be in New York.

And we started thinking, Wences Kassaros from Zappell. Yeah, yeah, Wences Krozenz from Zappel. And we started thinking, you know, it started to seem that these ties were starting to be built. And then I remember when the Coinbase, the team over there briefed us on the story and they're saying, we're raising $75 million. And I said, well, that's a big number. You know, you guys are involved. This is, you know, oh, then YAC's involved. USAA is involved. And they start rattling off these names that had never been involved in this. And that was another light bulb moment. You know, whoa, oh, Wall Street is getting it now. And that was a really big significant story. So let's talk a bit more about people getting Bitcoin. So one of the things you guys talk about in your book is about that you actually

had to start back to just concepts of trust and currency itself. Like, could you guys talk about some of your thinking around that? I mean, I know there's a lot of common discussion around this right now. but what uniquely has changed your shift. I think the interesting thing to think about this is the challenge that we've faced as journalists ourselves and trying to get traction around the idea about writing about it. And the problem is I think that people have had the narrative wrong about Bitcoin. They see it as a digital currency, which it is. But what does that mean?

What people think it is is just some sort of digital version of a paper dollar. The problem with that thinking is the paper. dollar is also not a currency. It is not money, put it that way. Money is not the piece of paper. And so money, in fact, is a ledger. It is a ledger that's built around multiple ledgers in reality, some of which are in our heads, some of which are inside banks.

And in this, it's the system for keeping track of value and keeping track of ownership, keeping track of debts. That's what it is. So once you, you've got to, we had to, in the book, get people to that. point first and then talk them through what Bitcoin is because Bitcoin is a solution to the failings of that ledger system as it works right now, which has been a centralized one, the process being controlled by banking institutions. And that itself was a technological advance 500 years ago that moved us to resolve the problem of trust. This is where it all goes full

circle back to trust in that we were not able to participate in exchanges of value with people over distance because there was no means to establish that relationship of trust. You didn't know whether what you were being given was actually real, whether there was any real value there, whether or not this was a fake commitment of ownership to whatever funds he's claimed to have. So the banks sat in the middle and said, well, we're just going to intermediate that process and checking accounts and the like are going to be means through which we will stand by the truth of this, the trusted third party. So Bitcoin is a solution to that. because it outsources that role, that intermediation of trust, to the entire community.

And it finds a fascinating, unique instrument that is the blockchain and the consensus process through which the miners come to confirm the transactions within the blockchain ledger to allow for a peer-to-peer exchange. But let me just push back a little bit on that because I think for most people, they're going to need to trust in the blockchain and Bitcoin miners and the whole system without really understanding how it works. So unless I become an expert in Bitcoin, I'm still going to have to trust that it works. So aren't we back to the same time?

No, I don't think we're exactly the same problem. Because, you know, they're two separate questions, right? So do you trust the dollar? And presumably we all do, right? That's one question. Who do you trust to allow the transfer of, you? your dollars to somebody else, a bank. So Bitcoin's solving that second question. You're absolutely right that one of the biggest challenges that Bitcoiners face right now. In fact, it's, in fact,

it's the essence of the challenge is to generate trust in the system itself. And one of the reasons why I think they struggle with that is because they've come up with this meme, but I think is actually problematic. And that is that there's no, we're a trustless activity. We don't need trust anymore. No, no, you absolutely do need trust. And you need them to trust you. And at the moment, the headlines don't always look so great when people are being hauled off for money laundering and the like. And these exchanges are blowing up and their wallets being hacked. None of which necessarily in any way undermines the integrity of the blockchain itself. But the story is one that is not actually conducive to public trust right now.

And that's a challenge. And the other element to that is simply it's a time issue. We can write a book. people who are building Bitcoin companies can go out and talk it up and do everything. But until Bitcoin proves itself over time to be a stable, reliable store value, a platform, a good platform, people won't trust it. I mean, it literally is just a time element of this thing proving itself. And one way to think about it is look at the car.

You know, when the horseless carriage first came on the road, you had to know everything about how that car ran. shops, you couldn't just take it to your mechanic. You had to know how to run the car. You had to know how to fix the car. There's no ecosystem around it yet, exactly. There was no ecosystem around it. And in the early days of driver, of horseless car, I almost said driverless cars.

We are in the early days. We are the early days of that. You know, in the early days of the horseless carriage, you had people being revolts by it. People wanted to outlaw it, get it off the roads. People thought it was dangerous. And you had to go through a period of time. where today people use cars, they don't understand how they work.

They don't care how they work. They don't need to know how it works. Exactly. They trust that the car is going to do the thing it was built for. Bitcoin's going to have to go through that too. And that is literally just a function of time. You can't brush that. Exactly.

I'm not convinced that people actually need to really even know what Bitcoin is. I mean, at the end of the day, for an end user, you just care about the GUI and the interface to the information. And is it easy to use and am I getting what I need out of it? I don't really care what's happening behind the scenes. Who does? How many people understand indoor plumbing? Right, exactly.

Do you know what that little crook at the bottom of the of the drain pipe does what it's for? No, people don't know. I do. It's so gas is done to escape, but I mean, most people don't and they don't care. They just know the plumbing works. Yeah. You raise a very good point.

And so in the book, you're not trying to convince people to run out and start using Bitcoin for everything. But what are you trying to convince them of? Well, you know, we've gone back and forth about, the title, and not just the title, but also the subtitle of the book. And we end up with a pretty big, broad claim that is, you know, part of the process of selling a book is to put a catchy title on something that gets someone's attention. But we stand by it. I mean, and that is that, that is that how Bitcoin and the digital money are challenging the global economic order.

And if I wanted to say, what is the takeaway? I want people to think about the way our financial system works and how that feeds into systems of governance, how it seems into the organization of society itself and how this type of technology, a consensus-based technology, is a very different and powerful way to think about how we grapple or some of the problems we've developed around the existing model. And that I think is, so in some respects it's a book for policy wonks. You know, it's not really, it's certainly not a how to book, how to go and get your Bitcoin and buy this. Of course, we do, you know, go through the process. We explain what the blockchain is. We do that sort of stuff so people get a feel for what it is. But we want, we want

this to be part of the public debate. We think Bitcoin and blockchains need to be really out there in the mainstream as a discussion point for how we move technology forward. Just as the internet now, you know, obviously is just a part of the fabric of our lives. There was a big discussion around it, you know, in those early days. And I think that that's, you know, we see ourselves as part of that process. And even though we're early, like, what's accelerating that? Because if you think about the adoption time from people who are inside, you know, like early computer scientists working on computer networking protocols with Bitcoin, it's come, even though we're still talking about it being early days yet, it's come

much faster, like the list of people you're rattled off that are interested. That would have taken 10, 15 years in the past, with past technologies. Like, why do you think that's accelerating right now? Well, I think, you know, one of the things about Bitcoin's history is that its development, it really is kind of a quirk of history. I mean, the fact that this thing comes out at the height of the financial crisis, the panic, where you're seeing the old order literally collapse and fall apart, and you're seeing all its failings in very painful fashion,

that created a groundswell under Bitcoin that helped it in some ways and hurt it in some ways. It helped it because I think that that's part of the reason why it's grown so much faster than other technologies would have. It's hurt it in some ways, too, because I think it got a lot of attention that it didn't need. and part of it was the media too, and we are part of the media, writing stories about it, and you kind of write about it and talk about it thinking that it's a built thing. Bitcoin is out there, it's done.

And when it invariably goes through its growing pains and it has the failures and the breakdowns, which are going to happen in any system being built, people say, oh my God, this thing's terrible, it's broken, it doesn't work, it's volatile, it's all these things. No, it's still being built, it's still happening. And so I think people don't quite understand that. You know, that this thing is at version 0.9 whatever now.

It's not even at 1.0. Forget 2.0. So the financial crisis, I think, really kind of was fuel for the growth. And I think it had both good and bad, you know, part aspects to it. Michael, you and Paul have both described the financial system as a failure. How does Bitcoin address some of those failures? And then you also discuss how centralized Wall Street, Street is because that's how it gathers power to itself, or among itself, right? How does Bitcoin

solve for some of those things? I think, I don't, I mean, I don't want to say that the financial system is a complete failure. I mean, obviously people go through their lives, millions, hundreds of millions of people use it every single day and it works, right? The problem, though, I think is, you end up, we do this. We mythologize the dollar and you start to give it a power that it doesn't really have, and people want to control that power. And so you have this great centralization of power in New York, in Washington. New York uses, the banks use their power to affect what happens in Washington. And that's where the problems come in.

And what I think Bitcoin can do is take that power of the currency and diffuse it, a decentralized system where people really can be their own bank if you want to or you can use a certain. It takes that concentrated power and it defuse it. fuses it among the broader society. That's, I think, you know, very briefly, that's kind of the big promise. Yes, that's the big side of it. And there's just a simple practical aspect, right? So you've got the failure of the financial system in all of its concentration of power and the vulnerabilities we have, the too big to fail banks, the centralized trusted institutions that we put all of our faith in blew up and we all were vulnerable to that, which is what we're talking about there.

But then there's some other point of it is, it's, the model as it is, is just, really expensive and inefficient. It costs more money and in many cases more time even to send money, which is nothing more than bits and bytes, right? Digital money from one place in the world to another than it does to send a good. The marginal shipping cost, you mean like a physical good? The actual cost, the cost that you are charged for bank wires and everything else that's laden into the system is more expensive than a good. Right. That is just a failure of system and we need to get to the, because it is nothing more than digital, and we know from cloud computing that that is, you know, the marginal cost of transferring data from one point to another

has reached zero, right? So this is a, that is really ultimately the practical question. How do we get that? And that's why, actually one of the reasons why there's a lot of interest right now on Wall Street to this, where you're getting a kind of a coalescing of the concerns around the crisis and the need for reform of the banking system and all the problems that come, the centralised trust problem, the systemic risks associated with that, and the idea that we can just actually save a lot of money and unleash a lot of capital because you've got three-day settlement times, that's trillions of dollars that's just sitting on the sidelines that has to wait until it is actually cleared by the system to then get back to work, right? So that's, you unleash, just by going from three to zero,

three days to zero, you have unleashed money into the world on a profound level. Right, in that sense, you mean, you can define Bitcoin as, like you said earlier, real time, but it's basically a settlement network. That's right. That's exactly what it is. That's a very good point. I think it's interesting you talk about the broader audience

that's interested in Bitcoin and the framework for it. Outside of the US, if you could give us to share your thoughts on that because we talk a lot about the unbanked and Bitcoin's oil on that. And also just like, who's reading your book? I mean, you were surprised,

as you said, by some of the people writing to you. I'm curious about that. Yeah, I mean, we've had quite a lot of speaking engagement requests from, really from all around the world. I was invited in a speak in Marrakech at one point that I couldn't go to. But what it is is really the variety of institutions, and I think that's what's interesting because it seems to reflect the breadth of interest in it.

You know, consumer advocacy groups. There's, you know... What do they want to know out of curiosity? You know, well, these guys who haven't spoken to yet, but I mean, they will have to see. But, I mean, the Philadelphia Fed is having us to speak at some point. The Bretton Woods Committee down in Washington, it's sort of, you know, a think tank that's very focused on the structure of the global financial system. system. Obviously, we get family, what do you call it? Family offices for financial funds who will

want us to talk about the opportunity to invest in it. You know, we're getting countless, I mean, Wall Street firms, we've got tech firms, we've got just really a very wide array. And then when we did our interviews around the time, we were on radio, we went from everything from Leonard Lopate, who's NPR, in New York, to the all-out show, which is this profane hip-hop on serious radio, to the coast-to-coast show, you know, people might know the after-midnight UFO kind of thing. That actually pretty much tells you everything you need to know about what people think about. The hip-poppers, they were really interested.

They asked good questions in very profane language. Well, you were going to call one of your phases like the, you know, like, oh, fuck moments. They were interested. and they wanted the answers, and they listened to us, and it was really, it was interesting. The thing I think, you look at it geographically, the most interest we're getting is out of San Francisco and the Valley, out of New York, and out of Washington.

And those are three huge power centers in this country, and all of them are interested in what this is. And that, to me, sort of illustrates how big this story really is. And where it goes, you know, we don't know. Yeah, well, I was going to say exactly, and what's interesting is that it's simultaneously happening because there is this trend sometimes where something will start in Silicon Valley

or it'll start first in DC or it'll start first in some other hub. And the fact that everyone's sort of asking at once. That's what makes this technology unique because it's not just a new toy. It's not just a new way to do X. It actually goes to the fabric of a system that we place so much value in. So it needs regulatory interest. It needs the financial systems interest and it needs obviously the tech guys to run it. What you don't want is a battle over it instead of a turf war.

You really want to see this coalesce around a much more kind of collaborative process. I think we're getting there. There's lots of institutions that are sort of trying to formulate around, you know, common standards and common interest across all these different parts of the world. You asked you earlier about the unbanked and the whole developing world. What's interesting, I think, a little bit of a challenge is there's a fairly broad consensus that the currency application of Bitcoin, because there's a whole world of non-currency applications that we weren't going to now. But on the currency side, the payment side, there's a sort of a consensus really that the biggest use case is sort of resolving the problems of the developing world where there's a lot of, you know, it's very expensive to move money, if it's send remittances, and there's a lot of people who literally don't have bank accounts who could be served by using this as an intermediary to money to transfer funds and so forth. But to the extent to which there's actually kind of a groundswell of interest in the developing world, I think that's one of the frustrations right now.

You know, people are certainly trying to build products here to sort of service the developing world. And there are certainly some startups that are based there and doing it. I think that we're at that phase right now. But I don't feel as if we've had like lots of phone calls from people who, you know, represent emerging market countries who want to invite us to come and talk about it, you know. We've had some. We've had some stories.

The topic we've addressed, but as to whether there's actually sort of coming from there, the interest, it's kind of, it's a top down level of interest rather. than bottom up. Right. And I bet that shifts pretty quickly. Well, Michael Casey, Paul Vina, thank you guys so much. Thank you guys. The age of cryptocurrency, and you guys are going to be still writing about it before the next book comes out. So we'll keep an eye out. Good stuff. Thank you guys. Thanks. Have a good day.