The Breakdown - The ECB Gets In On Stablecoins, 2017 Token Projects Resurface & Twitter Debates: Is Crypto For Criminals?

Episode Date: December 13, 2019

European Central Bank President Christine Lagarde’s comments on stable coins flew around crypto Twitter yesterday, as she said projects in the space indicated clear demand (even while slighting bitcoin in the same statement). Meanwhile, two once hugely hyped projects - Orchid and Filecoin - have both resurfaced. What might this mean for the narrative of tokens going into 2020? Lastly, in her end of year piece for CoinDesk, Jill Carlson triggered an avalanche of commentary by arguing that crypto isn’t supposed to be mainstream, because its primary use case is to for censored transactions. 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond with me, NLW. The Breakdown is distributed by CoinDesk. Welcome back to the Breakdown. What's going on, guys? It is Friday, December 13th. And today we are going to be talking about first the European Central Bank on stable coins and actually kind of a narrative, counter-narrative, between the ECB on the one hand and the Swiss government on the other hand as it relates to central bank digital currencies. Second, we're going to look at two projects from 2017 that have resurfaced after long absences from the public conversation and look at maybe what it means for 2020 as it relates to token projects. And third and finally, we're going to talk about a question

that has been a topic of debate basically forever, but has been reignited, let's say, in the last week or so because of a post around whether crypto is just for criminal use cases and what that means. I feel like that's a fun way to end Friday. But let's dive in first with this idea or this question of central bank digital currencies. This has obviously been a huge theme throughout 2019 from when Libra launched to the response of governments around the world, first China aggressively accelerating its central bank digital currency efforts and its digital yuan efforts to European governments responding, saying basically that Libro was never going to be allowed on their shores, but that they might be looking into building their own central currencies to

what big entities like the European Central Bank think about this, right? So if you go back about a couple weeks ago now, a European Central Bank official, this is an article from CoinDesk, says digital currency could be an alternative to cash. So this is the executive board members Benoit Corre saying the bank is going to examine different digital currencies and figure out what their approach should be. Corre has been appointed to basically be the head of the newly established innovation hub for BIS, Bank of International Settlements, which is basically the central bank or central bank. So the ECB has been talking about this for a while.

And in some ways, this represents the peak height of central bank co-optation in some ways of this industry, just given how contentious they are to new forms. of power. If they're interested, it's because they want to reappropriate new tools to consolidate and retain the structure and the system as it exists. But then we have a new president of the ECB, Christine Lagarde, and she was kind of exploding around crypto Twitter yesterday with this clip. So this is a tweet from Tur de Meester. He says, looks like the ECB will be entering the stable coin business. And then he wrote hashtag counter-reformation. TUR has been frequently talking about how the current conditions as it relates to the global monetary system in Bitcoin reflect to him

similar conditions that were there during the Protestant Reformation. So counter-reformation as a hashtag for him means, I think, exactly what I was just saying about this is the complete opposite in some ways of Bitcoin. But let's see what Christine has to say here. My personal conviction is that given the developments we are seeing, not so much in the Bitcoin segment, but in the stablecoins projects, and we only know of one at the moment, but there are others being explored and underway at the moment, we'd better be ahead of the curve if that happens, because there is clearly a demand out there that we have to respond to. So this to me is reaffirming of just what we've seen this year over and over again,

which is that the stakes are raised on the whole digital currency space. And the stage is set, I think, in some ways, for a real battle for who owns the future of digital money. You know, will it continue to be the responsibility of the central banks and the government? or will there be room for new entrance and new actors, whether they're private corporate actors or decentralized networks? That has always been in some ways the question for those of us in the space, but now the authorities, the existing power structures, the existing power holders are asking similar questions, and I think that makes 2020 look significantly different. However, there is

some counter-narrative as well today in the news. The Swiss government has recently undergone a research and reporting period around digital currencies. And they came to the conclusion that they're not really interested for the Swiss government, right? So they said, quote, universally accessible central bank digital currency would bring no additional benefits to Switzerland at present. It may be useful, they say, to financial market players, but really the idea of a token issued by the Swiss National Bank for retail, it just isn't interesting. Now, this is notable to me because it's pretty counter to what we've seen from a lot of governments in the wake of the Libra announcement. But maybe reflects the particulars of Switzerland, or maybe it means that over the next year,

we will see some back and forth and some governments that aren't as convinced as others. No matter what the case, what I know for sure is that 2020 on this front is going to be interesting. All right. So let's move on to number two now. Number two is this almost like out of nowhere, these two projects that no one has heard from for a minute came back, right? They announced something significant. So the first is Orchid. Orchid is a decentralized VPN that's meant to effectively make the internet a lot safer and a lot more private for people. And there was a huge amount of excitement around this project over the last few years. It's got experienced entrepreneurs behind it. They raised something like $43 million during their initial token sale or

their pre-sale. But it's been very quiet for a while. And then kind of out of the blue, yesterday it was announced that Coinbase had been looking into Orchid and it's going to actually list it. That's kind of story one. The second story on a similar term is that file coin, which was one of the absolute darlings of the 2017 crypto space. I mean, it really was held up constantly as an example of just what decentralization could do, right? It's a decentralized data storage network effectively. They have been so quiet for so long that a lot of folks, I mean, for a lot of people, Filecoin was the best case study in an ICO team kind of just being super quiet and not being clear about what was going on, even though, you know, to their closest investors, they had

continued to make reports. And the folks who defended their long absence said basically that this is really hard from a development standpoint and it's just going to take time. Well, two days ago, I guess they announced that they are launching the Filecoin test net. So that the test net is actually live now, which is obviously for any of these types of projects is a significant milestone. I laughed when I saw the tweet announcing it, the number one tweet reply was someone who put the gift of the woman from the beginning of Titanic saying it's been 84 years, dot, dot, dot. So it kind of conveys, I think, what a lot of people have felt, which is like, holy crap, Filecoin is still around.

It wasn't just an exit scam. Well, no, in fact, it was not. And now this is live. And so the reason that I wanted to point these two things out is actually not to draw any judgments on these teams or whatever, right? I think one of the challenges with cryptocurrency-based fundraising is that you have public market dynamics lopped on basically to private market contexts. And if you were a traditional Silicon Valley project, you wouldn't have those sort of public short-term pressures in the same way. You have

investors who are long-term aligned, at least theoretically, and who understand how long it can take to build technology. So again, my point in bringing these things up is not to draw judgment around what they have or haven't been doing or how long it's taken. It's more that one of the things that I'm noticing, and I think might be more of the narrative in 2020, is a resurgence or a return to a discussion around what token projects can do outside of just money. And in specific, I think there was an entire thread of human coordination, tokens as a tool for human coordination, tokens is a tool for getting beyond monopolistic networks that was part and parcel of the intellectual backing of the ICO movement, but that got just absolutely decimated because of the rampant speculative

reality of tokens, right? So tokens were, on the one hand, supposed to enable people to align their networks in new ways, to diminish or dismantle the distinction between network owners and network participants and really just create very robust and interesting new opportunities for human coordination. Now, what they also did is they had the ability to help people fundraise with almost no friction, and as that bubble got heated, it totally subsumed all other use cases. And so really in some ways, I feel like the experiments, the legitimate experiments, or at least the legitimate in theory experiments that people wanted to try, just never came to fruition. I think that 2019 has been a hard year to be a token team. Obviously, the regulatory apparatus has reached back to 2017 and earlier

to punish the worst offenders. You've had a narrative that's much more focused on Bitcoin and maximalism. So, you know, a lot of these projects have been quiet and building quietly, those who are still around. I think that there's a lot of pent up energy. And, you know, like it or not, or think it's legitimate or not, I anticipate 2020 seeing a lot more conversation about token economics and tokens as a network tool and tokens as a mechanism for human coordination. And I think that maybe some of these projects who are actually kind of surfacing now at the end of 2019 are going to be leaders of that. So I would keep my eye on both Orchid and Filecoin entirely on their own merits,

but also because they represent something, I think, in a changing narrative. And with that, let's actually shift to another big narrative question, maybe a fun way to end the day on Friday, which is a question. So the question is, is crypto for criminals? Let's kick this off with a story from Coin Days this morning, which certainly is kind of how I think a lot of people still to this day perceive the crypto markets. So the title or the headline is, Russia's largest dark net market is hawking an ICO to fund global expansion.

Hydra, reportedly the largest dark net marketplace serving Russia in neighboring countries, claims it is seeking to raise $146 million through a token sale to fund a worldwide expansion. The tokens price at $100 each will blah, blah, blah, blah, blah. Given the illicit nature of its business, Hydra's token offering may be the most brazen ever, even compared to the ICOs that pushed the envelope of U.S. registration requirements in 2017. The image that Koidesz chose to use was a pile of cocaine. So this is the legacy to some extent from a narrative standpoint for everyone who's in the crypto industry now, is the idea of Silk Road, and that's how a lot of people first heard about

Bitcoin, this magic internet money that was used to fund illegitimate things. Now, the reason that this article is interesting and the conversation that I think is where I want to take this is as part of their end-of-year coverage, CoinDesk invited Jill Carlson, who is now at Slow Ventures. She's been a consultant for a number of different projects. She helped Tezos. She helped Coda. She's been around the crypto space and has a really deep understanding of it. She spent time working on Venezuela. She's much more fluent in this and non-ideological, let's say, than a lot of folks out there, she penned an article that they titled, Cryptocurrency is most useful for breaking laws and social constructs. And her effective argument, and these are her words exactly, why hasn't

cryptocurrency gone mainstream? It doesn't scale. It's slow. It's expensive. It's volatile. It's hard to use. Or maybe it was never supposed to go mainstream. By design, cryptocurrency does not solve mainstream problems. This does not represent a design flaw. So what Jill is arguing is that what But cryptocurrency is truly the product market fit that it has, the use case that it enables that is so different than any other technology, is things that authorities do not want you to do. So here's the way that she puts it. Cryptocurrency enables individuals and organizations to make censored transactions, procuring

drugs on the internet. That's the one we just talked about, obviously. That's an example of a censored transaction. Buying US dollars in Argentina is another example, right? Right now, there are strict capital controls in Argentina as they try to rank to rank. in inflation and they want to keep more of the value and the wealth in that country in the peso. But obviously people who are in that situation don't want to be caught up in the government's ills so they want to move their money out, right? So buying US dollars in Argentina is another

example. Paying a sex worker, sending money to a friend in Iran, making an online purchase as an unbanked individual, selling cannabis as a dispensary, getting money out of Venezuela, supporting dissidents in Hong Kong. The primary utility of cryptocurrency lies in engaging in financial activity that is otherwise suppressed or prohibited. Now, this hit the crypto Twitter scene like a bomb, and you had really fierce opinions on both sides. On the pro side, there have been a number of other folks who have been beating this same drum.

So Joe Wisenthal from Bloomberg, we actually discussed this on a panel at Invest New York a couple weeks ago, and basically he had brought up a similar argument that he's seen so much of the white-collar crowd get into crypto and such a desire for institutional acceptance that he feels like it's lost some of its cypherpunk roots of actually getting around authorities. He shared the article and said,

cryptocurrency is for doing the things that authorities don't want you to do. And a world in which crypto has gone mainstream is a disturbing one. We had Ragnar Liffracer, who runs guns in Bitcoin, often a very kind of fierce opponent of some of these ideas. He says, I sometimes disagree with Jill Ruth Carlson, but she nails it here. Her point needs to be emphasized in the, the current Hodel Monomania pearl clutching 401k planning defer taxes with capital gains,

while spending in dark net markets are bad in K Bitcoin Millew. So he's basically making the same point that Joe is making, that there's this tension in the Bitcoin community between effectively the institutional acceptance crowd and the it's for things that authorities don't want you to do crowd. You had Joe Wisenthal again coming back in and he says, one thing that's clear reading the reactions to the Jill Carlson piece in CoinDesk is that as the Bitcoin space has become more corporate, lots of people want to play down the anarchist aspect of it and instead go with more anodyne

more QE arguments. And so I think the point is here, and this is what he had kind of gotten into recently, is that there is actually a bit of a schism that we don't even realize necessarily. And I think this is part of why this conversation feels very productive and not antagonistic to me. There are folks in the Bitcoin community who value more than anything else the idea of an undebasable money, that value the idea of a sound money. a non-sovereign money. They want Bitcoin as the global reserve currency because to them, what fiat money does and what excessive money printing does is create so many more problems in the world that sound money is what they care about. There's another group who care more,

it's almost like those are the macro folks. There's another group who cares more about the censorship-resistant aspect of it, the ability for transactions to happen uncensored, unfettered, uncontrollable by authorities. Interesting thing is that there's lots of people who hold both of these views. They're not mutually exclusive in any way. However, some of these questions, even if theoretical, force people to actually ask themselves, which is more important to me? If I had to trade one or the other. And that's where I think the value in this conversation comes in. Now, there obviously have been a lot of people who, in fact, I would say maybe more, at least initially, who went after this post and who very, very much didn't agree with it.

So Vlad Zamfier, obviously, of Ethereum and Crypto Law of Fame says, please don't embarrass yourself. and at the same time put your peers at legal risk by taking a stance that, quote, blockchain is for illegal activity, lull. Now, he didn't reference Jill, but Jill says, I can spot a sub-tweet when I see one, Vlad. One, I specifically say cryptocurrency is for, quote, censored activity. Two, censored does not equal illegal. Three, illegal does not equal bad. And she went on to say, it is disturbing to me how many people think that all who are censored are criminals.

It is similarly disturbing to me how many people think that all crime is bad. And so the point that Jill is trying to make is that just because something is illegal doesn't mean it's bad and just because something is censored doesn't mean it's illegal. These are really important distinctions and that when she's arguing that cryptocurrency is for censored transactions, it means just anything that an authority doesn't want you to do. It allows you to work around opt out of the current system. Then there was another set of folks who didn't necessarily just disagree with Jill on spec, but who really were taking the conversation out of, I think, the realm of Bitcoin. And in fact, one of the subtext for this whole thing is, we have this challenge in this community where are we talking about Bitcoin or are we talking about crypto, this is one of the time

that it matters. And I feel like a lot of the folks who reacted negatively to Jill's argument were actually folks who are from outside the Bitcoin community who are looking at crypto in a very different way. Linda from Scalar Capital says, I agree with Jill Carlson that a huge value proposition for crypto is censorship resistance,

but I want and believe it'll go mainstream. Digital store value, people earning interest with DFI, marketplaces for token items, eG video games, are just a few of the use cases I'm excited by. Yaniv Tal from the graph said a little bit more angry at first, although he and Jill had a come together moment as they dug in.

He says this is the worst article in crypto. It took his years to shed the cryptos for criminals' narrative. And then he quotes her, this is not to discourage or devalue any of the work that is being done to improve decentralized technologies. What exactly does this do? Snipe by our own. Joe Wisenthal responded, then what does crypto do besides what Jill says? And Yonov says it creates a neutral platform for open software. Developers and everyday people deserve freedom from monopolies. The web has structural flaws that we're experiencing on a global scale. We need this re-architecture for society to evolve. And so I think actually

this brings me back all the way around to the point that I was making in section two of this conversation, which is that I think that what Yanov is feeling and what he's articulating here and this idea of deserving freedom from monopolies is a narrative that is set for a return. We have been more in the big macro implications of Bitcoin narrative world for most of 2019. Obviously, defy has been happening at the same time and been brewing and developing as well, but I really think that we're going to see, as we go into 2020, a much larger return to the idea of tech crypto, ideas that were articulated by Chris Dixon in 2017. and 2018 in articles like why decentralization matters. That stuff never had a chance to be solved

because it got so wrapped up in the ICO movement. I think it's poised for a comeback, at least narrative space for a comeback. So it's going to be really interesting to watch. For me, I tend to agree with Jill that we fail to appreciate how important the product market fit of allowing people to work around authority is. I also agree with Jill that authority does not mean moral right and it doesn't always mean legal right even. It means the situation that people happen to find ourselves in. Now, I do also sympathize with these folks who want a chance to move beyond the criminal narrative. But luckily for them, I would say that right now, this conversation is happening primarily inside the crypto community and it's a good bit of introspection. And unfortunately,

when it comes to the crypto and crime narrative, Jill writing on CoinDesk is not going to really change things when the same week we have articles in the Washington Post about $722 million Ponzi schemes. You know, until that's gone, we're not getting rid of that. Ultimately, these things are actually, I think, valuable for us. And I encourage this type of conversation. So kudos to Jill for starting it. Kudos to everyone who responded for keeping this going. I think it's a really important conversation.

And with that, let's wrap up. It's Friday. I think that you're probably ready to be done talking about whether crypto is for criminals and ready to go be criminal relaxers on your own terms, and I salute you for that. So thanks, as always, for listening. We will be back on Monday. This was the breakdown for Friday, December 13th. I am your host, Nathaniel Widomor, at NLW on Twitter, and I will see you on Monday. Cheers, guys.