The Breakdown - The Geopolitics of Crypto, With Jill Gunter

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, April 1st, and there are no April Fool's jokes here on the breakdown. We are all serious all the time. And today, I am thrilled to be joined by Jill Gunter, returning guest to The Breakdown. But before that, if you're enjoying the show, please go subscribe to it, give it a rating, give it a review, or if you want to get deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.orgly slash

Starting point is 00:00:48 breakdown pod. Also a disclosure, as always in addition to them being a sponsor of the show, I also work with FTX. Now, as I mentioned, Jill Gunter, as a frequent guest of the breakdown, she's one of my favorite people to talk to about big picture power shifts. She was a former co-founder of the Open Money Initiative, which did research on how money was managed in places experiencing hyperinflation, capital controls, criminalization of free markets. She's a venture partner at Slow Ventures, so also has an investing perspective on crypto and technology more broadly. And finally, she's now a co-founder and chief strategy officer at Espresso Systems, which is

Starting point is 00:01:26 looking at privacy and scalability in the context of crypto. We have a really wide-ranging conversation that extends from the geopolitical to the macro back to the crypto industry. And so I know you're going to enjoy it. And with no further ado, let's dive in. All right, Jill, welcome back to the breakdown. It has been not that long, but it seems like a really, really long time. Crypto years. It's like dog years, right?

Starting point is 00:01:52 Absolutely. Okay. So for people who aren't familiar, one of the things that makes you a constantly interesting conversational, is that you kind of have a bunch of different intersections with crypto. You have a professional kind of investing lens that you come through. You have an operator builder lens that you come through. And you also have an impact, kind of, you know, global social impact type of lens that you think about these things from as well, which is inherently political in the sense of like thinking about big picture, you know, power changes in the world as well. Give us a sense of sort of like

Starting point is 00:02:26 what all you've been spending time on recently, just to kind of like level set how you're coming at the crypto space right now? Yeah, no, thanks for that introduction and setting the context for just who I am and kind of the lens that I bring to all of this. You know, what I would say has been kind of the theme of my time spent in the world of cryptocurrency, which now dates back to 2013, which is crazy to think about. It's almost a decade here. I just keep coming back to this question of who is this for, what is it good for? What is the utility of all of this stuff that we as an industry are creating? And I'm very grateful that over the last couple of years, I think that that utility has become more and more clear to a growing number of people. But for a very long time,

Starting point is 00:03:16 what I kept coming back to in answer to that question was what brought me into the space And just to tell that story very quickly, I started out my career on Wall Street, and I was in particular dealing with and trading situations in Argentina, around a debt default and devaluation of their currency and capital controls. And then shortly thereafter, Venezuela, where there were some similar dynamics in terms of, again, capital controls and high rates of inflation, which led to hyperinflation. Both situations, people were using Bitcoin to get their money offshore. And that is a lens through which I come at the space in general. That is, again, the answer that I always keep coming back to in terms of the question of, okay, what do we know for fact this is good for? And that has really informed a lot of the work that I've done in this space and a lot of

Starting point is 00:04:10 the work that I'm doing right now is very much around trying to unlock the appropriate options and sort of the right angles of utility in order to drive more and more mainstream adoption of hopefully all manner of use cases, but certainly, you know, financial use cases at the outset. So happy to get into all of that and more. It's always a really amazing invigorating conversation with you. Yeah, listen, I think it's a sadly perhaps apt time to talk about crypto's use in challenging circumstances, right now. But maybe before we get into that, let's talk about, I guess, your perception of, I want to kind of start narrow with crypto and then we'll zoom out from there. But your perception

Starting point is 00:04:59 of what's in the driver's seat right now when it comes to the crypto industry? How much of it is the crypto market cycle? How much of it is sort of a general macroeconomic cycle? How much of it is geopolitics? And you know, the obvious answer is, well, it's a combination of both. But I'm interested in kind of your thinking about this? Yeah, I mean, I think that those things are sort of three overlapping line graphs, if you will, or charts. And, you know, you can kind of sum them up in order to, in order to figure out the momentum around crypto specifically. And I think that what we've seen over the last few months in particular is that all of those line graphs have started moving in different directions from where they had been previously moving.

Starting point is 00:05:46 And so if you take the geopolitics question for a very long time, the big narratives around Bitcoin specifically, but crypto more broadly, did not feel super relevant to people certainly living in kind of the United States and the Western world and Northern Hemisphere, right, where the big narratives around inflation and government asset seizure and all of these things. that purportedly made Bitcoin sound money did not resonate with populations unless you were living in a place like Venezuela or Iran or Lebanon or North Korea or what have you. That's all changed with, of course, the Canadian asset seizures, with inflation ticking up across the Western world.

Starting point is 00:06:36 you know, suddenly those narratives around Bitcoin have come to the fore in a way that they weren't previously for the last decade. Now, on the flip side of that, if you look at what's going on in the macro market, again, we've seen a big change in direction, but in this case, it's been a very different impact and had very different implications for Bitcoin and crypto, where this is perhaps ironic, but as inflation is ticked up, as the Fed and other central banks have started moving more hawkish and talking about and starting to deliver on major interest rate hikes and started to mop up a whole bunch of the liquidity that they've pumped into the financial system, really over almost the last decade at this point, that has, of course, created headwinds for

Starting point is 00:07:31 crypto and even Bitcoin specifically. And so on those two fronts, we've seen this kind of collision of trends where on the one hand, Bitcoin and crypto has never been more relevant in terms of the utility that it can apparently offer to these more mainstream and moneyed populations of the West. And on the other hand, there have never been greater macroeconomic headwinds against them. And to answer your question, certainly right now the macroeconomic headwinds are winning out. I think that that's pretty evident just in the depressed prices

Starting point is 00:08:07 across crypto, across the board, at least over the last six months or so since things peaked out last November, October. And so I think that that has been the dominating factor. And I think that to your third, to your third point around what the dynamics are around

Starting point is 00:08:27 crypto as an emergent and nascent technology, I think that that is going to be really what kind of tips the scales here in one direction or another over the next six months as to whether the improved narratives around the actual utility of all of this stuff can start to win out and beat back against the rate hikes and the headwinds on that front. So, you know, maybe that is kind of the cop-out answer of all three matter. But I do think that the macroeconomic is the most important thing, at least over the last several months and will be probably for the next few as well. Well, the thing that's interesting, I don't think it's a cop out at all. But the thing that's interesting is whenever I ask that type of question, I always feel like it needs a time dimension. It needs to be like 4D because if Bitcoin and crypto more broadly, but specifically Bitcoin, have matured into this asset that is in the portfolios of traditional market.

Starting point is 00:09:26 actors, both individuals and institutions, it is inherently going to be subject in the short term to its where it fits for those actors, right? It's going to be subject to the same forces, but that doesn't preclude it also behaving in the ways that sort of attracted people to it in the first place. And so to some extent, it's kind of, it may be more relevant to ask or just parse out, you know, is there anything that could interfere with the macro supremacy on this in the short term? versus, you know, kind of on the flip side, is there anything that is either fundamentally reinforcing or fundamentally challenging the reasons that people are attracted to it over the long term? And so I guess more specifically, it's like, you know, is Fed policy always going to be

Starting point is 00:10:11 in the driver's seat in the short term from now on? But that doesn't necessarily impact whether people are getting more or less convicted about it as both an inflation hedge and also as a sort of censorship resistance to our value over the long term. Yeah, no, I mean, I think that that's exactly the right framing. And what tends to come to mind for me here is Ray Dalio's sort of framing of the super cycles and then the cycles within the cycles and sort of the drivers of these things. You know, he talks about this in the context of debt cycles, you know, on the scale of countries and even globally. He talks about this in a lot of different ways. And I think that it's a very applicable framework to talk about crypto where, you know, We can be talking on six-month cycles, which are very sort of short-term cycles in the grand scheme of things. And very often we do talk in terms of those short-term cycles and what's driving them. And I think certainly the short-term cycles, and that was the answer that I gave you, you know, the Fed and kind of the macroeconomic dynamics are driving them. But I think as I look at the bigger curves that are playing out, the bigger kind of sinusoidal curves that will play out,

Starting point is 00:11:25 it comes back to the technology itself. And as developments happen within the tech, what new use cases they can support and what utility it actually offers to people, right? Where, you know, it's hard to draw perfect comparisons because I think, you know, never before has a new asset class been so tightly tied to this new nascent emergent technology. But, you know, if you look back at, I hate to go there, but the dot-com bubble, right, you know, that burst based on a whole bunch of factors. And, you know, it was, I think, 15 years or so before a lot of those stocks, even the ones that persisted like Amazon, were trading back to the levels that they were at in 2000. But you have to, you know, if you're looking at it on that more kind of macro 10-year time frame,

Starting point is 00:12:23 then it's going to be very different things impacting it from, you know, impacting the trajectories than just what the Federal Reserve is doing in the year 2022. Super interesting. I remember the folks who were around in like 2018 and 2019 had a lot of time to ponder things because there just wasn't that much happening, you know, like relative to obviously now. And I remember there being this great big discourse around money crypto versus tech crypto. And this is a way of trying to kind of resolve and understand how, I mean, I mean, in particular it came down to like how Silicon Valley could have such a different

Starting point is 00:13:02 perception of what crypto was useful for or interested in versus sort of like the Bitcoiners, right, to super essentialize the two sides of the conversation. And part of what I kind of just heard in that last answer that I think is interesting to pierce out is like, is it may as we learn and as it develops be that it's sort of just the obliteration of those. two things as separable categories. And it's, it's maybe that might have interesting impacts on how it plays out, right? Like the dot-com bubble ultimately, the share prices of technology stocks is largely separate from how they operate in people's lives. Whereas the numbers associated with crypto, it has a much more intrinsic kind of connection point, maybe not in terms of market prices,

Starting point is 00:13:48 but in terms of the sort of like financial primitives. But I don't know. There's something interesting there. Yeah, no, I think that that's an important kind of dichotomy or framing to come back to is money crypto versus tech crypto. And I think that it's imperfect and that there are ways in which these things overlap and collide in crypto and in a way that, as I said, they don't. As you said, as well, they don't in other areas. But I think that it remains a kind of powerful framing just to even understand what, you know, different actors and and parties' motivations are in the space and why different people can have such wildly different interpretations of what's going on out there, what's important to pay attention to, and all the rest of it.

Starting point is 00:14:43 Looking for ways to step up your crypto game, then go with NXO. For starters, you get free crypto for each purchase or swap. How about earning guaranteed yields? Up to 17% paid out daily. Ideal for you hardcore hoddlers. You don't even need to sell. Instead, borrow instant cash against your assets. Get the most out of your crypto with nexo at nexo.io. That's nexo.com.com. Meet Arculus, the next

Starting point is 00:15:17 generation cold storage wallet. Arculus secures your crypto using three-factor authentication, providing a simpler, safer, and smarter way to store, buy, swap, send, and receive crypto. Arculus is offline cold storage. Your private keys are encrypted on the Arculus keycard and are never online. Stay safe from hackers with no cords, no charging, no Bluetooth. Just crypto security made simple. Buy Arculus on Amazon today. The breakdown is sponsored by FTXUS.

Starting point is 00:15:50 FTXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACHs, no-ACH transaction fees and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show.

Starting point is 00:16:21 I want to kind of zoom out to the biggest lens and then we'll start to come back in. Yeah. I'm interested in your take, your perception of these, these big think questions that are coming up in the wake of Russia's invasion of the Ukraine. And maybe to start, just, you know, bring us into what you've been observing, how you've been thinking, where you've been kind of drawn to ponder as it relates to the economic dimensions of this crisis, be it in terms of crypto or be it in terms of some of these larger questions of the reimagining of the financial world order. You know, what have you been paying attention to or

Starting point is 00:16:58 thinking about? Oh, gosh. There's so much to get into. there. But, you know, what I would say, first and foremost, and this comes back to the lens through which I first got into crypto and the thing that I keep coming back to about crypto as, you know, censorship resistant cross-border kind of money that can serve as an escape hatch to people, you know, be it in Venezuela or Argentina or indeed in Ukraine now, you know, on the one hand, It has been, you know, just an incredible thing to observe, obviously, the tens of millions of dollars flowing directly into Ukraine to aid organizations to the government, you know, hearing anecdotal data about people being able to exit Ukraine with their wealth in hand, at least to some degree and intact, in the form of Bitcoin. you know, these are really just incredible stories and data points. And I think, you know, were the types of things that even just a few years ago still felt

Starting point is 00:18:06 unimaginable or out of reach to those of us building in the industry. And that's been a really just powerful, again, thing to observe and in some ways get to be a small part of. On the flip side, of course, there is also this whole. narrative that exists about the quote unquote bad guys being able to also use an access crypto in the same way, be it, you know, Russian oligarchs or, you know, some of the kind of like Elizabeth Warren style hand-wringing about the Russian government, even using crypto as an alternative as they get hit with sanctions and so forth. And I think that for me, a big part of my

Starting point is 00:18:50 thinking about all of this that has been informed both from academic research that I did years and years ago on Bitcoin in the context of capital controls and sanctions. Also work that I did through the Open Money Initiative a few years back, which was a project that was researching how Bitcoin was being used in places that dealt with financial repression, specifically Venezuela was a main focus of ours. One of the key things that just arose time and again is that yes, it is possible for, you know, the big kind of powers that be, whether it's the Venezuelan government, where there's a lot of evidence that they were mining Bitcoin, or whether it's, you know, Russian oligarchs, etc., using Bitcoin to get money offshore to protect their assets.

Starting point is 00:19:40 You know, these things are open permissionless tools. And to the extent that we want to say that these things are available to dissidents and refugees, then we also have to accept, that they will be available for all to use, even those who make us a little bit, or in many cases, maybe a lot more uncomfortable in terms of thinking about their deriving utility from the things that we've created. But the thing that I want to highlight,

Starting point is 00:20:06 and this was a huge theme of the research, the academic research that I did years ago on capital controls and sanctions, is that the powers that be, big governments, big institutions, wealthy, well-connected individuals have always and will always have access to escape hatches for their wealth, for their, you know, for their countries, assets. There have always been ways, be it through relationships with financial institutions in their own country and in other countries, privileged access to information and financial products, privileged access, again, to other countries, financial systems, those escape hatches have

Starting point is 00:20:55 always existed for those big, powerful players. And crypto, based on all of the evidence that I've seen, at least, is not the best option available to those types of actors. It's not a good option in terms of liquidity, in terms of the blanket transparency of it, all of these factors for the Russian government to use to evade sanctions. But it is a very powerful tool for those who are not in those more kind of privileged and institutional and, institutional and, you know, powerful positions to those who otherwise would not have access to any escape hatches or any tools of financial freedom. And that to me, again, is playing out here as I look at Ukraine, Russia and the dynamics around cryptocurrency and that, I think, is a really important message that has often been missed

Starting point is 00:21:52 as the mainstream media has painted with very broad brushstrokes. It feels to me, I've had this sensation a couple times that it's almost two Goldilocks for like crypto rationalists to be willing to push this as hard as it seems yet. But it's sort of like the debate remains on, is it good for, people who are in these situations or, you know, does that, is that outweighed by how good it is for, you know, the oligarchs and the power structures that are trying to be, you know, targeted. And it seems initially that it's actually, it's like both and. If you're coming from the vantage point of Western policymakers who are focused on having sanctions go through, but who also

Starting point is 00:22:40 love the idea of people being able to have tools to mitigate. the worst of what they're going through now, that's sort of what we're seeing, where it's not like just the crypto community who's talking about this, the Treasury Department has been put in this weird position as crypto defender where like two months ago we were at each other's throats for some rule or something. And they're the ones who are now, you know, conference after conference saying we see no evidence of sanctions. Of course, we've got to keep checking it. But like right now, there's no evidence that there's wide scale or even small scale, oligarch sanctions evasion or Russian sanctions evasion. Exactly. But you,

Starting point is 00:23:17 are hearing stories of, you know, 20-year-old Ukrainian escapes with half their savings, you know, on a ledger because they didn't have to stand in line at the ATM. And by the way, that ATM was only spitting out $33 equivalent by the time that people got there. And there's something pretty profound about that. I also think it's, you know, whatever it ends up being, it will have left the realm of the theoretical. Exactly. And I think that the more the debates are had on the basis of like observable facts versus just, you know, the sort of protagonist and the antagonists combating for what they think is right in a theoretical sense, probably the healthier it's going to be. Yeah, I completely agree with that. And I think, you know, it's important to be measured in

Starting point is 00:24:02 this and acknowledge that we still have yet to see how all of the data shakes out here over the course of this war and this crisis that's happening. But that, you know, at least as of yet the data that we do have, you know, there is obviously overwhelming data that crypto has been useful to Ukraine and their resistance and individuals within Ukraine and even, you know, some individuals within Russia who are not perhaps the powers that be, but have been hurt as individuals, as families, et cetera, by the rubble crisis. you know, those anecdotes, and again, the hard and fast data that we do have around how crypto has been used by those types of parties far, far, far outweighs. The lack of evidence, of course, that,

Starting point is 00:24:58 you know, as you rightly point out, even Treasury is saying the dearth of evidence that there is around Russia using crypto in any kind of formal capacity. I also want to say, it's like, I don't think this is really a misperception issue. for this particular audience. But I want to make sure to be clear that we're not being gleeful about the fact that there's now a live case study where we have to see these things play out. Obviously, it would be much better if we didn't have to. But I think most Bitcoiners live in the world of recognition that these things are reality and perhaps being surprised, you know, where and how and, you know, why they happen, but recognizing that they happen. I want to move,

Starting point is 00:25:39 though, to the sort of the even bigger picture side of the economics of the Russia invasion of Ukraine, what is your take on the whole discourse around the dollar? And by that, I mean, not just sort of like bitcoiners who are, you know, kind of pointing out any time that anyone says anything about Bitcoin, but also sort of the Zoltan poser, Bretton Woods three thesis and all these sort of things, which are basically kind of, you know, how much is this an inflection point in the system? And is it the direction that, you know, Finwit is. saying that it's going in, or is it a very different direction, you know, which other people argue that says it's, you know, the dollar is really the only thing left. But I'm interested in your take

Starting point is 00:26:17 there. Yeah. I mean, I think that as an American, I would say that we as Bitcoiners, perhaps, we as participants in the crypto industry, don't know how lucky we've been in many ways to have had the dollar. It's very easy to stand here and criticize it and throw stones that the dollar hegemonic system and all of the quite literal suffering that that's caused over the years, you know, globally. But I also think that in many ways, the dollar system. And again, I say this with full awareness of all of my privilege as an American, you know, it's been stable and has offered us, you know, a period of unprecedented growth.

Starting point is 00:27:08 globally, you know, dating back to Bretton Woods, the original Bretton Woods. And I think that as we see now all of these threats coming about against the dollar, whether that's, you know, the dynamics around Russia, whether that's the dynamics around China, importantly, whether that's the dynamics around, you know, how oil gets priced, dynamics around the inflation, issues and and the Fed's attempts to hike and get get that under control, get the value of the dollar under control, or whether indeed it's Bitcoin, the rise of cryptocurrency itself, I think that we would do well not to take for granted the benefits that we have all been able to enjoy based off of the dollar system. And kind of regardless of which direction things

Starting point is 00:28:06 sort of pan out here over the coming decade or so. It leaves me with some trepidation for sure to think about the uncertainty of a world in which dollar hegemony is gone. But on the flip side, it also leaves me with some degree of optimism that that void could be filled with, you know, something superior. But I think that the reality of these things, if you look at economic cycles, going back through history, going back hundreds of years, there does tend to be one dominant global reserve currency that gets used for the price of goods that, you know, everyone else is forced to maintain reserves of in their central banks and so forth. And so, you know, I think that it's more likely that to the extent that we do move away from the dollar and if I was

Starting point is 00:28:58 forced to guess or to choose, I would say that that trend is playing out. I think it's more like that it ends up being, you know, the REMB, that ends up just replacing it wholesale as that reserve currency as opposed to some greater kind of compromise that comes about. It's interesting. I find myself less sure around which direction I think it plays out. I think that it's very clear that there is new political risk associated with the dollar that perhaps wasn't on the table for people before based on this, it is not clear to me that that risk puts it anywhere near as the inherent political risk of aligning with the other available options. And so maybe the net of that is just that everything seems fucking risky. You know,

Starting point is 00:29:51 like it's just increased all monetary risk everywhere. Yeah. In which case, that becomes a very interesting game theoretical thing that I have no idea how to predict and how it plays out. But it's, you know, it's, it's, I am a little bit uncomfortable with sort of the easy narratives of, not that you're proposing one of these, but the easy narratives of like, oh, well, you know, the, the, the U.S. has gone after foreign exchange reserves, so no one's going to use the dollar anymore, you know. I'm, I'm more compelled perhaps than, uh, than, than I like to be by the, like, yeah, but it's the cleanest dirty shirt argument, which has been the U.S. dollars argument for a very long time. It's just, or sure it's even dirtier if it's still

Starting point is 00:30:29 the cleanest. Yeah. And I mean, to be clear, I, I, I don't necessarily. think that those dynamics are going to be what precipitates a shift to, again, whether it's the Rwereman B or anything else. I think it's more just sort of the shifting of global power dynamics on a geopolitical level in general. I think that this is perhaps one small part of the story. But I like your uncertainty, Nathaniel, and I appreciate it. And I take it as optimism. So I'm going to role with that. I think it's been fascinating to see people have behaved in ways that are very different than how people thought actors would have behaved in this. One, the U.S. actually deciding to be in a global leadership position in a way that's sort of assertive, I don't think is something that

Starting point is 00:31:18 people anticipated. Certainly not from the Biden administration. That's weird. The EU finding at least so far, although it's being assailed now under the pressure of energy concerns, like actual common course. There's bad risk to that, obviously. You know, like there's a lot of people who are looking warily at, you know, remilitarization of Europe, but still it's not something that people expected. I think a lot of people expected China to go into Taiwan 25 minutes after this was announced, and obviously that hasn't played out. And I think that they're optimistic in the sense that like, these were kind of crude caricatures of how global power dynamics had evolved. And the realities are much more subtle. And they're much more subtle. They're much more complex. And subtlety involves, I believe,

Starting point is 00:32:03 a lot more room to negotiate and push for the things that one thinks are better or worse. If everything just plays out exactly as you think, then we're all just kind of along for fate's ride, right? Yeah. No, I think that that's right. So I want to bring this back, sort of like my trail off from Ukraine and Russia back into the crypto world. Yes. You have spent a ton of time, going back to exactly where you started this conversation, thinking about how these types of digital monies, you know, cryptocurrencies interact with people's lived lives in the context of financial sovereignty, financial privacy, and sort of how they interact with money vis-a-vis the state and vis-a-vis sort of just their own kind of natural rights. You've been thinking a lot

Starting point is 00:32:53 more specifically around just privacy in general and where it fits in crypto in the blockchain. How has what you've observed reinforced or shifted your thoughts on privacy as it relates to cryptocurrency or digital currencies? And what is the state of that? Where does that sit for you right now? Yeah. No. So privacy has been, as you say, an enormous focus of mine for years, really dating back probably to the moment, I think back in 2013 when I first kind of realized, like, oh, wait, Bitcoin is not actually private in the way that people think it is. And then that thread running through the work that I've done around the use of crypto in, you know, the form of offering a tool for financial freedom and sovereignty to people.

Starting point is 00:33:42 There's obviously a very strong thread of a need for privacy there. So many of the people that I spoke to in that context, as I was doing research around that theme, were not even aware, as I was not, again, in the beginning, that all of their transactions are indeed transparent on this ledger. And, you know, if the government, if their government cares to, which in many cases was the kind of adversarial actor in the situation, the government could, you know, audit the blockchain. and probably figure out, you know, who was who and who was doing what and who was getting your money offshore to evade capital controls and all of these things. And that came as kind of a surprising and sometimes scary revelation to people. And then another experience that I have had in the cryptocurrency space that is coming from an entirely different direction is the work that I've done with big sort of Wall Street institutions, even kind of central banking institutions.

Starting point is 00:34:47 in terms of understanding what their needs would be, were they to adopt either sort of like permissioned blockchains in days gone by or to adopt cryptocurrency as a product that is integrated into their processes that they use? And there again, privacy crops up as one of the first concerns where big institutions like that need to understand who their counterparties are. they need to know their customers, all of these kind of regulatory and compliance considerations that we in the crypto space all know and love or sometimes hate, but regardless, we're familiar with them. And then on the flip side, though, they also need to be very concerned about their own data, right? They need to be very concerned about the leaking of their data to competitors,

Starting point is 00:35:42 to adversarial actors, the leaking of customer data. And so, across kind of both ends of the spectrum, ranging from individual sort of dissidents and those types of parties using crypto, ranging all the way up to, ironically enough, like governments and central banks exploring this technology, privacy has always been a theme that is cropped up in my line of work. And a recurring element of that theme is that the options that exist to or have, you know, up until very recently existed within crypto, have tended to be quite black and white. If you're using a privacy-oriented coin or blockchain, you are giving up and forsaking all of the benefits of transparency that you can get from crypto. And if you are using a

Starting point is 00:36:36 transparent chain like Ethereum or Bitcoin, of course, then you are forsaking any claim that you might want to have on your privacy. And so a big theme of my work over the last couple of years has been exploring how people actually approach privacy and think about privacy and the fact that users don't actually think of it in these black and white terms. They think of it as just, well, what do I want to keep private and from whom and under what circumstances? And so do big entities. And that's a big part of what I've been working on again with the company that we just launched a few weeks ago espresso systems. So let's dig into that because I've seen you, you push back on a post about CBDCs

Starting point is 00:37:22 and privacy around these specific themes. So let's talk about what this sort of gray vision of privacy is, let's call it, you know, or consumer-oriented vision of privacy is. Technicolor vision. There you go. That's a better way to put it. Yeah. The branding marketing person in me.

Starting point is 00:37:41 Yeah, so I mean, the post that you're referencing, I think is actually a good framing for this and a good place to start where this has happened several times now where a central banker will get up on stage at, you know, some conference or, you know, in the form of making some announcement about how they're approaching cryptocurrency now. And they will share something that I think to many people in the crypto space. feels oxymoronic. And what they'll be saying is they'll be saying, and this is sort of Western EU, ECB, or else the Fed, types of central banks saying this, just for context, they'll be saying, one of the most important things as we explore CBDC

Starting point is 00:38:30 is that we respect users' privacy and users' right to have private financial transactions. On the flip side, we as the central bank, will also need to optimize in our design of any CBDC for having appropriate controls and appropriate auditability and insights into what is going on with the central bank digital currency that we issue. And again, that can feel upon first glance like it doesn't make any sense, like those two things just completely butt heads against each other. How can you be guaranteeing users privacy while also maintaining insights and control over what users are doing. But the reality

Starting point is 00:39:15 is, is that for the majority of users, and the ECB actually put out, the European Central Bank actually put out an amazing report on this about a year, year and a half ago, where they went to users, potential users, right? So they went to their stakeholders in the population at large, and they ran surveys about what users care about. And those two things came out as two of the things that users themselves cared about, where for the majority of users in their study, in the ECB study, they found that users cared about their privacy in general from the general population. You know, they didn't want their neighbor to be able to go in and see what their income was or, you know, their friend from work to go and be able to see what their mortgage payment was or

Starting point is 00:40:02 whatever. But they were okay with, in fact, in many cases, wanted. they're importantly, you know, trusted, democratically elected, whatever government, to be able to have insights and controls into what's going on. And that, I just think, speaks to the fact that for most people, and this again feels foreign and uncomfortable, perhaps, to those of us with kind of a libertarian bent within the cryptocurrency ecosystem. But it does speak to the nuance with which users tend to think about their privacy. And I think that that is going to be an increasingly important thing to capture for all manner of users.

Starting point is 00:40:48 And importantly, I think that it just is a matter of opening up the spectrum of possibility and the spectrum of options for users. And I said this in the tweets that you were referencing. I would not be comfortable in a world in which a C-Bs, where governments have full auditability and full controls over transactions, where that was my only option. I think that fully anonymous cash in the form that it exists as paper money should exist. I think that Monero should exist. I think all of these things should exist. But I think it's okay as well if a prevailing option that exists out there that users are comfortable with is something like what I just described.

Starting point is 00:41:33 What are the knobs that you think can be toggled when it comes to cryptocurrencies? Where do cryptocurrencies fit inside a, let's say that there's a privacy respecting CBDC regime. And let's hold aside for the sake of discourse, well, governments can't be trusted anyways, line of thinking. Yeah. Which is sort of a prerequisite, you know, disinclination towards CBDCs. Where do cryptos or privacy oriented cryptocurrencies fit in that? Where are they in that spectrum, I guess?

Starting point is 00:42:00 Yeah. So, I mean, I think that there are a lot of different ways that this could all play out and a lot of different options available, depending on kind of what is suitable for the society that we're talking about. But I think that, you know, I think that there are different approaches that, for example, central banks, and this does not obviously have to be limited to central banks. It could be any asset issuer can take with regards to privacy where using the magic of zero knowledge proofs, right, which is. enable you to prove certain things are true about the underlying data without revealing the underlying data itself. There are all kinds of incredible applications that you can think of with regards to that where, you know, I could imagine on one end of the spectrum, central banks or other parties getting comfortable issuing fully private assets, given that those already exist, again, as central bank assets in the form of paper cash today. I could imagine a world in which, you know, there is enhanced data privacy for people relative to what they get within the banking system,

Starting point is 00:43:06 the kind of digital and online banking system as it exists today in the West, wherein you could imagine banks interacting with whether it's a CBC or bank issued note or, you know, some other type of cryptocurrency and only being permissioned to view what's going on in transactions that are above a certain threshold. You know, this kind of aligns with like the travel rule guidance if you're familiar with what Faddaf put out. And then you could also imagine all manner of, again, other use cases where, you know, for example, I might be able to prove certain things about my credit score.

Starting point is 00:43:45 I might be able to prove that my credit score, if it were to be attested by the big parties that be on chain, I would be able to prove it's above a certain threshold. without having to disclose all of the underlying information, you know, to a landlord or a lender, what have you. Just a lot of really incredible, again, just options that I think suddenly become available that do go a long way towards protecting user data, even if it is not the kind of maximalist all private everything from everyone all the time, privacy approach that, some of the OG cipherpunks who I know and love would advocate.

Starting point is 00:44:31 So do you see a lot of this technical or space as the way you just described is basically sort of like a zero knowledge proof of, you know, my credit score is X, but you don't need to know my exact credit score. You just need to know it's in this range. And there are ways to do that without actually revealing what that credit score is, but not with having complete privacy around that credit score kind of a thing. Exactly. And, you know, again, I think that there are many different ways in which this can be applied to assets, to applications. And I think that, you know, the exciting thing to me is that there's been tremendous validation, again, even just over the course of my career in crypto, that this is a thing that people care about, that institutions

Starting point is 00:45:11 care about. And yet it's not a space where to date we have been able to see a whole lot of innovation. There are obviously a multitude of companies out there that are actively working on privacy and then there were kind of the early pioneers of Zcash and Monaro, but we haven't seen the sort of explosion of innovation that we have, for example, within the Ethereum ecosystem around what I think is a fundamentally new knob to turn, as you put it, around what things are private and public and transparent to whom and under what circumstances. How much is this a technological challenge versus a political challenge? Yeah, I think it's a great question.

Starting point is 00:45:54 question. I think it's, it could be framed as a political challenge just in the sense that privacy is is always contentious. And I think that the fact that people do tend to talk about privacy as I'm doing right now in kind of the blanket term of privacy can feel immediately scary or threatening to, you know, be it policymakers or what have you. But I don't actually view a lot of this as inherent. politically challenging. And I think a lot of that comes down to kind of the framing of things where, you know, a lot of the regs and laws that exist out there protect users' privacy, right? You know, certainly we've seen this in the EU. You know, I think that we see it more and more in the United States where, you know, a lot of the burdensome regulations on companies are

Starting point is 00:46:53 about data protection. And, you know, I think that that has also been a challenge to those who want to adopt cryptocurrency. It's not just kind of the other way around. I think that the biggest challenge, certainly they're very serious technical challenges, but I think that one of the biggest challenges that I would highlight is just how devilishly tricky privacy can be to reason about as a builder. as a product designer, as someone, you know, creating new applications of these things,

Starting point is 00:47:29 it can be very, very challenging to make sure that you're capturing privacy in the right way, in the way that people care about. And I think that a great example of this, both good and bad, perhaps, was evidenced with Facebook, where Facebook rolled out all of these kind of variable user controls, right, over who gets to see what data and what data gets shared on your timeline with other users. You can really fine tune it and so forth. And I think on the one hand, they did an excellent job of enabling users to take control of their privacy in that way. But they missed one big thing, which was not just how users get to control, how their data is shared publicly on their timeline on Facebook, but also with whom Facebook was then sharing.

Starting point is 00:48:20 their data. And I think that that's a really great example of how we talk about privacy in these very blanket terms when in reality privacy is going to mean something very different depending on who you are, how you're coming at it, you know, where it turned out a lot of people misinterpreted, you know, Facebook's quote unquote privacy guarantees to believe that Facebook would never share their data with third parties and so forth. And again, you know, you talk to a political dissident versus a, you know, big company. And they're also going to have very different views of what privacy means. And that's where I think configurable privacy becomes important, but just the trickiness of designing

Starting point is 00:49:03 applications in the right way for the right users will become evident as well. Absolutely. It feels to me like there's a reckoning coming for this on a national conversational level. We have a type of money in cash that is inherently. privacy preserving. Right. And there is a big part of me that feels like the way that that conversation plays out when people say, yeah, but you should be able to have private money. And pointing to cash is not, oh, yeah, you're right. Cash already has that principle. It's like, that was a historical accident. We never should have had that. Right. Can you imagine if someone

Starting point is 00:49:39 proposed cash today in Congress? Yeah. It's insane. It would be insane. Yeah. Which is, I mean, that's the fascinating thing. All right. So I want to get to wrapping up, but I have to ask a question to throw back to a podcast that you used to do. You obviously look at a lot of other parts of the crypto industry as well. What's grinding your gears right now? What is grinding my gears? Oh my gosh. I have to say something that is grinding my gears. And thank you for the podcast. Shout out. I miss my days of being on the microphone with Meltem. But I would say that's something that, it's grinding my curious right now that we haven't touched on at all here is just the state of the growth hacks that have come about as a result of, I think, the rise of NFTs and NFTs,

Starting point is 00:50:31 various NFT projects trying to gain traction around themselves. And also as a result of probably like defy air drops and kind of the yield farming and so forth of the last couple of years. which is that as a builder now, as someone who is back on the building side, trying to ship and build products that matter to people and an underlying protocol for them, it is nigh on impossible to get good signal amidst the noise of, for example, a Discord channel or a Twitter account and so forth of what is really resonating with people. thanks to the fact that so many of these projects that I was alluding to have been rewarding people over the last couple of years for just dropping into their Discord channel and saying GM or making a meme or what have you. And don't get me wrong, I love the sort of pleasantries that exist within the greater crypto Web3 ecosystem.

Starting point is 00:51:38 But I also think that it has really muddied the waters in terms of being able to derive signal from noise for those of us trying to find, you know, the market for what we're building. Yeah. Listen, I say this is someone who has lost listeners because they didn't just instantly condemn NFTs for some purity test. And as someone who believes very strongly that they're both super interesting things about NFTs and that even the worst of them are, radically less pernicious than the worst of the ICOs. But it's hard not to be reminded of when investors asked with a straight face, how many people are in your telegram? Right. When they were thinking about it.

Starting point is 00:52:21 These vanity metrics, right? Yeah. No, there's definitely a lot of that. You had a great tweet about this. He said, AirDrops and Whiteless based on low-hanging contributions, like saying GM in a Discord or mass meme creation of shot to hell existing models around community development and engagement.

Starting point is 00:52:35 Crypto needs to completely rethink what community can look like. That's the challenge. That's the opportunity. All right. Well, we'll check back in in a few months to see how we're doing on that front. But for now, Jill, thank you always for your time for coming on, for sharing your insights. And glad to see that you're back building and excited to see what you guys do with it. Thanks so much. I want to hone in on this point about privacy and whether it's a more technological or political challenge going forward. And Jill articulated a lot of the ways in which technology,

Starting point is 00:53:08 creates more nuance, more technicolor between black and white, as she put it, in how we think about privacy or not. I think that's incredibly powerful, but it's also inherently, I think, political. In many ways, it feels to me like it opens the political surface area to have the discussion about how privacy is or isn't going to be built in to the systems we create for the future. I do think, as I mentioned in the show, that there is a big political discourse coming around the nature of privacy in money specifically. We're already seeing previews of it in the crypto industry. We're certainly seeing it in the early conversations around central bank digital currencies. One of the things that's going to be powerful is that it will not just be the cryptocurrency

Starting point is 00:53:51 industry allied as a block. I think there's going to be a lot of different takes about where privacy fits even within this. It is clearly one of the most significant parts of the discussion of central bank digital currencies and in particular a digital dollar. My base case continues to be, that the upshot and efficiency of a digital dollar is going to make it impossible for the U.S. government to resist. And that's to say nothing of the actual benefits, which I'm not even factoring for here. Given that, I hope that many of you will participate in the national conversation that I am anticipating around the nature and design of that CBDC. And for what it's worth, that could mean fighting against it before it becomes a foregone conclusion. Whatever the case, it was great to have Jill on the show, and I'm excited to be.

Starting point is 00:54:37 to bring her back to catch up on all of these topics in the months to come. I want to say thanks again to my sponsors, nexo.io, Arculus and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners, come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain,

Starting point is 00:55:09 crypto ecosystems, Web3, and the Metaverse, and is designed for crypto-newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few. Use code breakdown to get 15% off your pass at coindesk.com slash consensus 2022.

The Breakdown - The Geopolitics of Crypto, With Jill Gunter

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.