The Breakdown - Why ‘Crypto Dad’ Is Building the Digital Dollar Foundation

Episode Date: January 16, 2020

As Libra continues to spur discussions among regulators around the world, and China’s digital yuan comes ever closer to fruition, the U.S. Federal Reserve seems disinclined to look seriously at a digital dollar. Ex-CFTC Chair Chris Giancarlo - aka “Crypto Dad” - isn’t waiting around. He has teamed with Accenture to launch the nonprofit Digital Dollar Foundation.  As crypto continues to evolve, it does so in sometimes divergent directions. Gemini announced a new insurance company designed to make big institutions more comfortable with the space. Zcash, meanwhile, released an updated SDK to make it easier to shield transactions via mobile. Can the privacy-preserving side of crypto co-exist, ultimately, with the sanguine institutional side?  Finally, we revisit our discussion of personal tokens and ISAs, as well as look at the latest research from Coinmetrics on whether bitcoin is behaving like a safe haven asset.

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to the Breakdown. It is Thursday, January 16th, and today we're going to be trying something just a little bit different. I'm going to try organizing things into segments that have a little bit clearer of a prompt, just to see how you guys respond. And so we're going to start off with what I think is the most important story of the day. That's where we'll start. Crypto Dad is back. The former head of the Commodity Future Trading's Commission, the CFTC, Christopher Giancarlo,

affectionately known in the crypto world as Crypto Dad, has just announced a new project, a new laboratory, a nonprofit lab to build a digital dollar. Basically, Christopher Giancarlo thinks that the dollar risks losing its role as the world's global reserve currency in light of emergent digital currencies such as the forthcoming digital yuan. That's a major concern for him. And rather than waiting around for the Federal Reserve to actually do something about this, especially when they have indicated that they don't particularly see the need for a digital dollar, they have teamed up with Accenture to basically design and advocate for

a U.S. Central Bank digital currency. So the project is going to be called the Digital Dollar Foundation. As I said, Accenture will be providing a lot of the architecture and technology development. But certainly the real story is that a major, a significant former government official, right? Giancarlo's only been out for a little more than a year at this point, is now saying that it is so important that the U.S. can compete with not just its currency as it is now, but a digital version of its currency, a digital dollar, that he's making his next big bet in his career on this particular issue. This is interesting also in light of the fact that, again, as I said, the Federal Reserve has previously shown not a particular amount of urgency around this issue. So two U.S.

Congressmen, French Hill, who's a Republican from Arkansas, and Bill Foster, who's a Democrat from Illinois, wrote an open letter a while ago to Jerome Powell, the head of the Fed. pushing for a CBDC and asking whether it was feasible and worth the effort. And basically, Powell's response has been, sure, sure, we're looking into it, but they really doesn't think that it matters, right? That it's an important part of monetary policy. So CFTC, former chair, is stepping in and getting involved. Obviously, this is a huge story for the singular reason that I think the battle for the future of money is the most significant narrative defining this. industry. It has been the most significant narrative in some ways underlying this industry for a long

time, but ever since the emergence of Libra and China's response to Libra, it has taken on a whole new level of significance. Right now, there is a three-part competition for who gets to print, mint, and design the money of the future. Will it be governments as they always have? Will it be corporations who are building their own forms of currency like Libra? Or will it be governments? Or will Will it be decentralized networks, things like Bitcoin, that are the money of the future? Will it be some combination thereof? Can they coexist? These are the questions that are going to define a huge part of monetary policy and global economics in the coming years.

And I, for one, am very glad that someone at this sort of upper echelon in the U.S. government is diving in. The reality is that China is coming hot and they are coming fast and they are going to put out a digital. U-WAN, which will inevitably increase their global economic influence. And anyone who pays any attention to the way that China comports itself on a global stage has to be at least a little concerned with that. So I think it's important to have competition in markets. That's what capitalism is all about. And I'm glad to see a former high-ranking U.S. official diving in on this digital dollar

question. With that, let's shift to our second segment, which is not what's most important. but just something that's incredibly intriguing. Recently, we discussed ISAs, income share agreements. These are an idea that's been around for a long time, particularly in the education space, and something that Silicon Valley investors have been getting more and more excited about lately, and which they see as potentially an area where crypto can have a meaningful impact. Now, the light in which we were talking about it had to do with Spencer Dinwiddie's contract,

bond, which he offered on Ethereum starting earlier this week. He basically securitized 13.5 million of his contract, put it on a bond on Ethereum. It's allowing people 90 people or 90 shares of this thing for 150,000 each. We kind of had this whole debate about what the significance of that was, whether it really mattered without the ability to have non-incredited investors involved. And we talked a bit about Ryan Selkis' argument that this represented a potential future killer app for crypto. Now, I think that there's a ton of questions around ISAs. They are not a foregone conclusion. However, in some ways, to the extent that we see the arc of the technology universe bending towards people having more control over their own financial destiny, it's hard not to imagine

that we're going to see a lot more interest in the ways that people can effectively token. tokenize themselves and allow people to participate in their success, make bets on them, while also finding new ways to fund and finance those projects that they're really interested in. So I noticed this week that Alex Masmesh, who has been speaking a lot recently around under-collateralized defy, that's a real passion for him. He's been working in the defy space for a while. He has just announced a social money created with Role, which is a network that basically allows people to make digital tokens. They say, quote, unique to your online presence, allowing you to own control and coordinate the value you create across platforms. They basically

wrote a blog post that's been a month since Alex offered these tokens. They said it's only been a little over a month, but we've seen Alex using the Alex token in some pretty interesting ways, from signaling his future startup to venture firms. And he showed a tweet where Andreessen Horowitz got one Alex token in exposure to Alex. Basically, he was using Alex tokens as a way to incentivize followers. He was using Alex tokens as a way to incentivize people to donate to projects he cared about. He was using Alex tokens as a mechanism to offer his time. And so on and so forth. So again, this section is not about what's important now, but what's intriguing. And why I find this intriguing is that we still live on a personal monetization model that has been more or less

the same with some tweaks for a very long time. You either start a business or you work for someone else. And there has been some amount of gray area involved in the sense that you have more 1099 freelancers, contractors, remote workers, right? But you're still roughly in the same paradigm of either here's my time for money or I'm going to build something where I can escape time from money. And I can't imagine that we're not just going to see a huge amount of experimentation with whether these types of tokenized networks actually change anything. Now, the skeptic will say it's just a token for the same stuff. It just introduces new friction rather than just having people pay you $20 for your time. They have to now hold tokens and go to some exchange and, you know,

et cetera, et cetera. And I'm not unsympathetic to that point of view. However, I think that we're at the very beginning of experimenting with this whole idea of income share agreements and people being able to basically create derivatives around their own futures that I think crypto is going to have a role in rightly or wrongly and whether it ends up good or bad. So something to watch for sure. Next I want to talk about a trend that I'm watching, or you might even say a narrative watch. And that today is the challenge of a key divergence in the industry, which is on the one hand, the industry's push to be more deeply integrated into the existing financial apparatus, and on the other hand, the industry's push to create more and more powerful tools for

privacy for shielding transactions. Are these at loggerheads? Can they coexist? That's the trend that we're looking at today. The stories that contribute to that trend or that narrative are first, Gemini, which is obviously led by the Winklevoss Twins, has created a new insurance company to protect clients against potential losses for coins that are stored in its custody solution. And it has a $200 million coverage limit. This is, I think, a hugely important part of the financialization of this industry and of getting new people in. I've had numerous conversations with high net worth individuals or even not particularly high net worth individuals who are on the one hand don't necessarily want to just trust exchanges with their Bitcoin or whatever asset they've bought or they would

by theoretically. These are people who are kind of pre-coiners. And on the other hand, don't trust themselves to self-custody, right? That's a bridge too far because they either grew up in a different paradigm or whatever it is. They want some trusted custody solution, but they also want this sort of assurance that nothing is going to go wrong. I think this is a hugely important step in the financializations of the market. And I think it's going to be really, really powerful for everyone who's advocating for new entrants to come in to have this sort of insurance fund normalized. I think it's really important. But again, what we're talking about is a trend that has the financialization of the industry on the one hand counterposed with the ability of the industry

to allow for more shielded transactions, for more private transactions. So on that front, we're looking at a story from Zcash, from the electric coin company. They've just released a new SDK, an improved SDK, that makes it easier for developers to support shielded payments on mobile. There's lots of Zcash wallets that exist for laptop and desktop. Zcash is obviously a privacy-centric cryptocurrency, but it's often very challenging to facilitate shielded transactions on mobile because there's a huge amount of data needed. So it's a technology constraint to private payments if you're doing them via mobile. Of course, most people, if they're interacting day-to-day, are doing things via mobile, so this seems like an important area.

Basically, Electric Coin said that it has figured out a way to reduce those data constraints on mobile versions when it implements its privacy technology. So it's gone from gigabytes, they say, down to megabytes, which makes it work for mobile phones. So this is obviously a powerful step because privacy preserving technology only matters in some ways if it's available and usable on the tools and the mediums where we're actually engaging with transactions. Flip that to another story from a different crypto startup, Elliptic, which is a crypto analytics firm,

which is going to be testifying to the U.S. Congress that there should be more stringent, more strict AML anti-money laundering enforcement around exchanges that enable privacy coins. This is weird. I don't know anything about elliptic. And, you know, on the one hand, I'm sympathetic to regulators who have to think about money laundering, who have to think about the way that money flows around the world. old in terms of crime. But at the same time, I got to say it's a little bit like being targeted by your own to have a crypto firm testifying that exchanges should have even more regulatory enforcement and more stringent regulations around privacy tokens. Obviously, you have

organizations in this crypto space like Coin Center who have been working very hard to convince the U.S. government and U.S. regulators that privacy is an integral part of what their job needs to be and that there's nothing necessarily at odds, at loggerheads, between privacy-preserving technologies and the rules that the AML need. So I haven't looked deeply into elliptic. It could be that this is something that even a group like coin center would agree with their testimony, but it just strikes me that we have this really big challenge in the narrative, and this is the point that I'm trying to make, and why this is a narrative watch. You have the greater institutionalization of crypto on the one hand, and then these new technologies, which are trying to

trying to make it able to continue to preserve or expand the way that it preserves people's privacy, on the other hand. And I can't imagine that they're not going to come at odds, both in a practical way, but also from a narrative perspective. And that's why I'm watching it. All right, now let's wrap by turning to a few things that I think you should be checking out on your own that I've found really valuable and important. First is a little bit of research from coin metrics. So coin metrics is one of the best data reviewers, researchers in the space. Their newsletter is essential. I highly recommend you subscribe to it if you don't yet. And the most recent issue, issue 33 from Tuesday of this week, their weekly feature was all about whether Bitcoin is becoming a safe haven

asset. This is something that obviously we've talked about a lot on this show. We had Travis Kling talk previously about how Bitcoin has responded in the context of the Iran situation and what it suggests in terms of Bitcoin's evolution as a safe haven asset. And I always am interested in what Coin Metrics has to say about this because they are highly non-ideological and highly data-driven. So their analysis wasn't strictly speaking yes or no, but they said, we have witnessed perhaps the strongest validation of the Bitcoin safe haven theory in its 11-year history, and this watershed moment marks an important milestone in Bitcoin's maturation as a legitimate asset class. They also wrote, and I think this is incredibly important, it renewed discussion about Bitcoin as a safe haven

asset and introduced the idea that other traders are considering it for safe haven capital flows. Ultimately, assets attain a safe haven status by a combination of their fundamental properties and due to game theory-driven consensus among investors. This is exactly what Travis was talking about last year when he was on the show, that effectively safe haven status is not just about the fundamentals, although that has to be a part of it. It's about the idea that other people think something is going to behave like a safe haven asset, and then it becomes self-fulfilling prophecy.

So really fascinating read and yet another entry into this ongoing discussion about whether Bitcoin is a safe haven asset or not. So, there you have it. Slightly different take on the breakdown today. I'm interested to see what you guys think. I'll probably keep iterating with this because why not? My goal is to make this as high value, high impact, as useful in value ad, basically, as it can be for you. So let me know, hit me up at NLW.

Email me at nLW at whittamore.io. And as always, guys, I really appreciate you listening. Subscribe on iTunes. Give it five stars on iTunes. Subscribe wherever else you subscribe. Do whatever you can. and just share the show, and I appreciate you. So, cheers, guys, and I will catch you for one more breakdown

before we head into the weekend.