The Pomp Podcast - Bill Barhydt: Ex-CIA and Goldman Sachs Entrepreneur on What's Next for Bitcoin

Episode Date: November 12, 2018

Bill Barhydt is the founder of Abra, a simple to use crypto-currency investment platform backed by some of the best investors in the world. In this conversation, Barhydt and Anthony Pompliano discuss working at the CIA, financial services regulation, building on Bitcoin, and where Bill thinks the crypto-currency industry is headed.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Bill Barheit is the founder of Abra, a simple-to-use cryptocurrency investment platform backed by some of the best investors in the world. In this conversation, we discuss working at the CIA, financial services regulation, building on Bitcoin, and where Bill thinks the cryptocurrency industry is headed. This conversation was a lot of fun, so I hope you enjoyed it nearly as much as I did. This podcast is presented by BlockWorks Group, the only blockchain event and media production company I trust. If you're an investor, lawyer, accountant, or entrepreneur and want to

attend exclusive events and dinners, visit them at blockworksgroup.io. I promise you won't be disappointed. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Before we get into this episode, I want to give a quick shout out to one of our sponsors. Saluna is a blockchain computing company powered by its own renewable energy.

The team is planning to build a 900 megawatt facility on top of a 37,000 acre location, one of the best wind sites in the world in southern Morocco. You'll hear more from them later in this episode, but I'd love if you could go check out their website. You can find them at saluna.io. All right, guys, I'm super excited about this episode. I've got Bill here with me. We've got a lot to talk about. You guys are doing some really interesting things that I don't think a lot of people know about.

So thank you so much for coming. My pleasure. Happy to be here. Absolutely. All right. I think everyone knows you as CEO of Abra, but let's go through your background first, how you got here. Because I think that kind of informs some of the stuff you guys are doing. Sure thing. Long career, kind of a strange path to get here. I was a cryptographer at the CIA when I was a kid, basically. And it wasn't my calling, but from a technology and, you know, kind of cool factor, it was awesome.

It was a great experience. I learned a lot. Spent some time as a quant tech goldman in fixed income research here in New York City. Also wasn't my calling, but served me really well. Wouldn't have been able to design the synthetic currency model for Abra without the knowledge base that I built there. It's kind of like an MBA on their dime is how I look at it. And was at Netscape in the early days, worked on a lot of early certificate authority implementations for our new SSL product, which, you know, is HTTPS. and a lot of e-commerce and banking projects. And over the last kind of 15 years, I've spent a lot of time working on mobile wallet and mobile banking projects. Also for developing markets, I have a lot of work in compliance.

I spent a lot of time on Dodd-Frank and was part of the group that worked with them to fix some of the remittance rules they created around that. So I'm also, unfortunately, reasonably well-versed in current money service business, predating Bitcoin, even money service business rules and e-money rules internationally and things like that. And so I feel like it's all kind of come together now in this new Abra world where I feel finally qualified to do something that's going to add hopefully huge value to everyday consumers in the banking world. Absolutely. No, that's awesome. All right, we got to ask about the CIA. What does a cryptographer for the CIA do on a daily basis?

So, well, this was late 80s. So I'm sure the answer today is very different. But ironically, it had to do with Russian hacking from the 70s and 80s. If you're, well, you're not old enough to remember, but we had built this embassy in Moscow in the 70s and early 80s, based upon some deal we had with them. And in their infinite wisdom, I guess it was Carter that basically did a deal which said, okay, we're going to build an embassy there, and you're going to build a new embassy here. And somehow, the embassy that they were building in D.C. was going to be built with Soviet workers, and the embassy we were building in Moscow was going to be built with Soviet workers. And we moved in, or we started to move in, and we found bugs literally every 18 inches in the concrete. Shocking. Shocking, right? I'm not exaggerating. It's a well-documented thing.

There's museums where you can actually see them. I don't know if they're open to the public, but they're there. And so, obviously, we never moved in. And this basically sent a kind of a tidal wave through the organization, which said we have to get it together in terms of how we do internal messaging and everything else. And so we were effectively running the internal messaging systems across embassies and other facilities. And it was completely open text in those days because they assumed it was a private network. It turns out there's no such thing. You know, things like E&M waves are detectable, right, in the hallways in the new building at the CIA when I first moved in.

All the hallways are crooked, and that's because they have what we call waveguides, which absorb electromagnetic radiation so that you couldn't detect it easily from the outside. So it turns out that nothing is undetectable. And so encryption all of a sudden, ironically, became a big deal again. And I was part of that early team that was working on some of that. And I'm sure it's evolved dramatically and significantly since then, but now I'm out of date, obviously. Yeah, it's interesting because the encryption debate, I think a lot of people forget. So Zuko, actually, from Zcash, brought this up to me one time, and I thought that it was really powerful.

So most people forget that encryption was not a thing where the government was just like, oh, let's all use encryption. In the beginning, it was actually, why do you need to hide what you're saying and transmitting? And that's what the criminals use. And this is late 80s, so there was no public-private key kind of infrastructure, even at the private company level. Right. So this was all kind of in-house proprietary cryptographers sitting on a whiteboard saying, how are we going to secure this? How do we initiate sessions? Because there was no SSL, you know, you know, Tire hadn't worked it all out yet from Netscape. So so this was like really figuring it out from scratch stuff, which was fun. But I couldn't really tell how it was going to change the world. Right.

But lo and behold, it actually is because a lot of the cypherpunk stuff I believed in in those days is finally caught up with us. Yeah. Well, encryption went through the same thing, right? First it was, oh, criminals use this. You should never be allowed to use this. We should make it illegal, right? I think there's literally government hearings about this stuff. There's a famous, I'm going to forget who did it, it was Senate, Congress, whatever, but there's a famous speech that was given saying, listen, this is not for criminals and terrorists and all that stuff. This is security and there's a bunch of communication you want to actually protect. And now it's become industry best practice. So a lot of the youngins in the audience may not remember, I mean, we fought these wars in my Netscape days where you could not export the same version of the web browser that you used in the U.S. because the keys were padded with zeros for the international version, because otherwise it was considered strong cryptography or weapons-grade cryptography, and the Commerce Department would not give you an export license for that product. And so because I was very focused on the international markets, I spent all this time with our lawyers. As a matter of fact, the head of Mozilla was the former head of Mozilla was the lawyer for us at the time. And I remember arguing with her on the phone going, hey, you know, this is crazy. You're killing our business because the banks won't launch banking products. This is in 96, you know, with this browser because they know that the NSA can hack it in 40 minutes.

That's the whole point of not letting them export it in the first place. And of course, it wasn't her choice. She was just, you know, the messenger. And, of course, Phil Zimmerman put his, you know, PGP key on his T-shirts just to prove how ridiculous this whole thing was. And eventually other companies in Europe developed strong crypto to get around the fact that you couldn't do it here. And finally they realized that they were fighting a losing battle and it was just stupid. And now, of course, nobody even knows that that was a problem 25 years ago. But we have a history of, you know, repeating these issues.

Absolutely. Well, and Zuko's point was, you know, just like encryption went from only terrorists and criminals use it to now industry best practice. he actually thinks on the privacy coin side right all of these features that oh you know why do you guys use this for zcash or monero or whatever uh it all has to be a nefarious activity will eventually just be standard practice for every coin i don't know i mean if from a from a crypto perspective standard practice maybe from an enterprise perspective i mean i've been hearing this for 25 years and it just hasn't happened because people just don't either don't get it they don't want to go through the effort until you've been hacked you don't understand and that's

part of what we deal with as well at Abra, is that, you know, even when you say non-custodial wallet to an uninitiated person, they're like, well, what the fuck are you talking about? I don't know what that means. I just want to buy crypto. Until you've been hacked, then you dig in a bit and you say, oh, wait a minute, they're holding my money. And this isn't a bank. If they hack me or hack you and steal the crypto, it's gone, right? But if I'm holding the keys and Abra gets hacked, there's nothing to steal. Now, if you've been hacked, you get that. If you haven't been hacked, you don't even understand why you should be having the conversation in the first place. And that's a mentality that, I'll be honest, I just don't know how to change. And it could be

possible that this generation has to wait another generation to get that. And public-private key crypto needs to pervade society in a way that's more fundamental for the average person to get that. That just may be the case. Or it just may have to be hidden in the background in a way that ethical companies just mask the complexity of it for you, just like Netflix doesn't require you to understand TCPIP socket programming in order to watch a movie. I don't know the answer, but the answer will eventually present itself. For sure. And I think we'll get there just a matter of time, right? And how long, nobody knows. All right, let's jump into Abra. So what is it? Right. So Abra is a simple crypto wallet combined with a built-in exchange that allows you to hold

investment exposure to up to 80 different currencies, 30 crypto and 50 fiat. We use a very sophisticated kind of smart contract platform in the background to enable all of this because we're not actually holding the cryptocurrencies. So you are basically holding, now I'll talk about the tech, right? So the simple consumer explanation is very simple crypto wallet. I can exchange between all 80 currencies, one button push, no complicated trading interface, bank in and out in like i think we're up to like 35 countries now okay meaning you can take money in and out of your bank account into the abro wallet and i'll explain the mechanics of that in a bit but but now from a technology perspective it gets even more interesting because this is the

basis for all the future work that abra is going to do what you're actually holding inside the abro wallet is a bitcoin collateralized multi-sig contract all based on either the bitcoin or in some cases litecoin uh blockchain but they both work the same way which is why all right so let's go, we've got to explain what this is, because I think a lot of people have heard you say this, and they've got no clue what that means. Sure, sure. And that's, from a retail perspective, we don't want people to have to understand, but we're totally, we want people who are into the tech to understand, because there's a really cool factor about this. So think of it this way. Let me give you an example in gold, in the physical world, and then I'll translate it into the digital

world. If I owed you $100, right, I could obviously hand you $100, I could wire you $100, But for some strange reason, if you didn't want any of that, I could also hand you an amount of gold worth $100. But the moment I handed you that gold, you would be taking volatility risk on the price of gold versus the amount of money I owed you, in this case $100, meaning you'd be taking risk on the price of gold going up or down, right? Now, you could fix that by basically shorting the gold at that moment, right? And then the cost of the short, right, minus the hundred dollars minus the cost of the short would effectively guarantee that you're fixing the value of gold at one hundred dollars. Yep. Or you don't have any at least any downside risk at that point. Yep. OK, so think of us doing the same thing using Bitcoin as the asset class instead of gold. OK. And using the multi-sig capabilities of Bitcoin, right, to facilitate Abra being the counterparty to effectively that short.

So effectively, if the consumer is holding dollars in this case, they're shorting Bitcoin versus the dollar. If they're holding Ripple, they're shorting Bitcoin versus Ripple. Abra is the long counterparty to that trade. Now, ethically, Abra can't enter into that contract unless I can make you whole if you're in the money. Okay, so let's just say that I want to buy Ether on Abra. I put fiat into my Abra wallet. Right, so what that means, let me just clarify what that means. When you're putting fiat into your Abra wallet, the experience looks like Venmo, like a Venmo deposit.

But what you're really doing is you're depositing money at an exchange, which then automatically buys Bitcoin for you. And then in the case of Ripple, enters into that multi-sig contract where you effectively short Bitcoin versus Ripple, right? And Abra takes the long position on that contract versus Ripple. So, okay. Now, all of that happened in the background without you having to know. Well, when I put my $100 in, right, is there any Bitcoin long or short position by just putting the money in? Yes. Okay.

So when I do that, you're going— 100% of the time. Okay. So as soon as I put my dollar in, I wire it from the bank, it goes into the AbraWatt. Immediately, Abra is buying what? Bitcoin. Technically, you're buying Bitcoin. Yep.

So Abra, for me, buys $100 worth of Bitcoin. Correct. And it shows me I have 100 US dollars? It depends which currency you deposited the money into. If you deposit it into the fiat wallet, you're going to see $100. Okay. If you deposit it into the Bitcoin wallet, because you can also deposit Bitcoin directly. Absolutely.

In that case, it just shows up in your Bitcoin balance. Yep. But it shows up in whatever wallet you've put the deposit in, usually your dollar wallet or your Bitcoin wallet. Got it. Okay. And so if I want to go from dollars to, let's say, Ether, right? and I go ahead and I press a button and it says buy $100 of Ether, what occurs? Good question.

So immediately, the dollar wallet has to be converted to Ether. How does that work? Now remember, the dollar wallet is a Bitcoin contract and the Ether wallet is a Bitcoin contract. So we immediately redeem the dollar Bitcoin contract in exchange for Bitcoin and then we create a new multi-sig contract that fixes the value of the Bitcoin as Ether. Got it. And then you're acting as one of the signatures on your phone.

Abra is acting as the second. There's this Oracle concept, which we can come back to, which guarantees for the consumer that if Abra goes away, things are still good. But effectively, that's what's happening. You're converting one Bitcoin contract to another Bitcoin contract. Got it. Why does this matter for retail investors? Okay, well, the long play for Abra is to develop a crypto bank, right?

So what does a crypto bank mean? From my perspective, it reverses the model of a central bank-based custodianship model to one where the consumer is in control of their own funds, whether it's for investing, which there are lots of examples beyond just investing in crypto, credits, or person-to-person money transfer and remittances, which is one of the big reasons I started Abra in the first place. You can actually do all of those transaction types in a model where you're in control of your own money for the first time without having to understand the nuances of how the crypto works or ABRA having to be licensed in 175 countries to execute those transactions. So we've developed a model which is free of effectively SEC, CFTC, or European e-money style regulation because of the fact that we're not a custodian of consumer funds. We're not developing swap execution facilities or other kind of security-based products doing this. We're entering into very simple crypto contracts, which are effectively able to roll over either daily, weekly, monthly, whatever system we set up. And that also gets around a lot of the nuances of CFTC regulation as well. For people who say this looks a lot like CFDs, which are illegal in the U.S., that's true.

but we're not actually implementing them the same way that a leveraged European-style CFD is implemented. These are zero leverage, instant capability for rollover. Abra is always the counterparty, which, again, gets around a lot of those regulations. So the point is I can effectively develop a legal crypto-based bank in every country in the world minus the OFAC-sanctioned countries with zero licensing that puts the consumer in control of their own money. That's not hackable from Abra's perspective because if you hack me, Yes, you might be able to steal my crypto, but you can't steal the consumer's crypto. Got it. And so what's the regulatory thought around this?

Right. So obviously the regulations are put in place for protection of consumers to guarantee these kind of safe, efficient markets. And what you've done is you've looked at those regulations and said, you know, OK, the criteria is A, B, C, D. uh we aren't going to operate where we do abcd um and yet you're still able to provide value to a retail investor are regulators okay with this are they worried about this um i i think it's too early to say the regulators are worried about this because they i don't think they're going to understand most of this discussion at least there are pockets of people now who've dug in who might understand in the u.s maybe but i've met with central banks all over the world they would be lost in most of this conversation, but that's not really the primary point. The primary point is that

if you give consumers ones and zeros that they can hold on a hard disk on their own, right, that's generally not regulated. Now, if those ones and zeros represent child porn, for example, obviously that's regulated. But other than that, it really isn't something that the regulators are looking to oversee, right? Even in China, it's not illegal to hold your own private keys on a hard or a smartphone. The interaction with the banking system for those ones and zeros as they relate to Bitcoin is regulated, right? Would it be fair to say that the regulators today regulate transactions and they regulate centralized authorities, but they usually, I can't think of an example where they regulate the content of which you own. Right, that's right. I mean, First Amendment

actually does apply to a certain degree to Bitcoin. And we've used, you know, First Amendment principles in some of our arguments, but in terms of understanding what my rights are to manage my own keys, right? But at the end of the day, most of the regulation has to do with touching the traditional financial system, right? If you look at most companies that have either applied for licensing or, you know, think they need licensing or have foregone, for example, operation in New York because of the BitLicense, it's because I have to operate inside the banking system, I'm managing keys in a centralized model or some combination of the two, or I'm developing derivatives that do that, like in the case of a Ledger X, for example.

Those are really the models that the regulators are looking at today because it's very clear where they fit in vis-a-vis existing regulation without having to develop new laws. I actually would posit that the BitLicense didn't need to exist if New York wanted people to have money transfer licenses. They could have done it within the existing framework, which is clarifying the existing rules. they just chose to go a crazy step deeper. Got it. And so what's the ramification here in terms of the current regulatory environment doesn't address this approach, right?

So they obviously could change that in the future. They could just let it go, whatever they choose to do. How do you think retail investors should think about security, regulatory protections, et cetera, right? So there's the as a business, obviously, you want to operate in a way that provides value to those retail investors and you want to operate in a way that is compliant in the sense of you don't want to violate any rules. Right. And so if you put the onus on the retail investor around their key management, their security, et cetera, a lot of people would argue that's good. Right. There's some people who would argue, do you actually trust individuals to do that? you know somewhat complex technical work or management how do you guys think about that right like is it through education or how do you just kind of help them okay let's let's break that

down um so first of all the key here to start pardon the pun is make this really simple right so when you start abra for the first time you don't have to do anything i mean literally nothing you get a wallet interface and you can just play around with the app the first time you try to do a transaction, the app prompts you to verify your, your, your recovery phrase. Okay. Okay. And it gives you a couple of warnings. And I think the third time it won't let you continue using the app unless you do that. So we have like over 99% compliance with that because either you do it or you, or you can't use it. Right. And, and ethically we felt compelled to do that. We didn't have to do that. Right. We could say, Hey, you know, use it at your own risk.

And we did some split testing on that. And we found that people liked the fact that Abra recognize, hey, this is my money. They're going overboard to protect my money and to make it clear that they have no access to my money. So we do have over 99% compliance with that, which is, like I said, a self-fulfilling prophecy since we lock you out if you don't do it. And that's probably the best you can do in the short term. Now, there are other things you can do by splitting up keys, secret sharing, but the user experience for that becomes unwieldy. And we haven't found a way to integrate the best-of-breed biometrics or anything inside the app that goes beyond just having a recovery phrase. Now, the good news is, is with hundreds of thousands of users, I don't know of any significant money loss yet in the system.

Is it likely to happen that eventually somebody loses their backup phrase and coincidentally loses the phone? Yes, it is likely to happen eventually. But if you're going to put consumers in charge of their own money, if you're going to allow people to put cash in a wallet and carry it around, and you have millions of people doing that, eventually somebody is going to lose their wallet. That's the nature of human nature. So over time, we want to get better at this and give people more and better ways to manage their own money. But the user experience is the key to get people in. The good news is that the retail investor here is not putting millions of dollars in this. It's usually hundreds and thousands.

and we've made that recovery process. So at Christmastime, for example, we've got now one season of experience doing this where people got new phones and had to migrate, right? Invariably, everybody was able to do it, right? If they didn't get it intuitively, they'd contact support. We would say, just type in your backup phrase,

your recovery phrase into the new phone, and it'll merge the wallets, and you're good to go. Yep. Right. Why choose retail investors over institutions? Because this is part of our... I mean, our mission is to provide democratized access to financial services for the global consumer. That's it, right?

Investing is one of those core capabilities. Credit is another. Payments and money transfer is the third over time. So the fact that you can invest in crypto, that's just the first asset class we chose to enable via these Bitcoin collateralized contracts. eventually you're going to see equities commodities mutual funds mashups of all of them right we launched that bit the bit 10 index token a few days ago which represented a mashup of the price feeds of different tokens into one bitcoin collateralized contract that just sets the stage for showing people that we can mash up any asset classes into one investment token effectively

via this model so i could give you exposure to equities and crypto in one token yeah right and And that means I could have a Bitcoin-Apple share. Absolutely. One share that's 50% Bitcoin, 50% Apple. Yeah, and so one of the things I'd like to do eventually is give people a screen where they can say, hey, I want to specify the kind of risk exposure I want. So if I'm an investor in Hong Kong who can't normally invest in the S&P 500 easily, or Mexico where there's tens of millions of people

but less than a million investment accounts in the entire country, right i can now give them investment exposure for example to u.s uh spiders the s&p 500 right tracking stock and say i can mash that up with bitcoin so that i have 80 exposure to the s&p and 20 exposure to bitcoin in one investment and so my risk and my alpha beta is is kind of mashed up there in a very like easy to clarify risk profile yeah right and the idea to be doing be able to do that globally is very compelling but over time to answer your question this becomes kind of that democratized access to banking services play that I think crypto is essential for, right? That's where I think crypto solves problems that you can't solve without crypto,

which is how do you provide access to this on a global scale, right? In a way that puts the consumer in control of their own money. Absolutely. Yeah. What would be the number one reason why this would fail? Well, if there was some catastrophic failure of Bitcoin itself, and we hadn't, for example, migrated this to also support Ether-based contracts, which we'll do eventually so you have both, we would have a problem. So the contracts also assume that the price of Bitcoin doesn't go to zero quickly. If it went to zero slowly, we would be able to get people out of the contracts. But if it went to zero overnight, that would be a problem.

And so let's talk about this, right? Because what you're basically doing is you're the counterparty in these contracts and you're taking risk, right? how do you protect against the downside risk right so when you enter into one of these bitcoin based contracts and all of a sudden price drops yeah dramatically not to zero but dramatically what is your risk profile there and how do you guys mitigate that yeah let's use the first half of 2018 as an example to explain this because the price of bitcoin obviously was falling uh precipitously uh the whole year so 20 to 6 is a big drop is that it fell enough to make the point

to answer your question with a real world example. So explicitly, Abra didn't lose a penny when that happened. And our consumers were always made whole, 100%. They didn't lose a penny. So what happens is in these contracts, to be clear, the consumer is shorting Bitcoin, which means they're betting the price will fall. But Abra is taking the opposite bet, which means when the price does fall, I'm making them whole with a bet. So that means I have short exposure to losses. So how do I mitigate that short exposure so that, like I said in this example, I didn't lose a penny? Okay, so Abra is basically borrowing Bitcoin on the open market at relatively low rates because the lenders see that there's no principal risk, which I'll come back to in a second, on those borrowings. We sell those borrowings in exchange for whatever the consumer is betting against.

In this case, they're betting Bitcoin against, let's say, Ripple. And so we're buying Ripple using the Bitcoin. okay so if the price of uh bitcoin versus uh ripple goes down right i owe you uh more bitcoin right but it turns out that the ripple i'm holding buys more bitcoin than it used to because the price went down right but turns out it's just enough to make the consumer whole and pay back the lender got it so you're basically both sides of the trade to a degree correct so what whichever way the price moves you're able to make either yourself whole or the consumer. And the key is to keep that interest rate low enough so that any spread I have to

charge as a risk on the trade is also low enough to be compelling for the consumer. And we've been doing this now to the tune of hundreds of millions of dollars in volume, which relative to institutional money is small, but for retail is actually quite large. I believe we're one of the largest borrowers of Bitcoin in the world. And so that actually doesn't scale, by the way, which I'm happy to admit. But there are other kind of NDF-based models, non-deliverable forward contracts that we can enter into, right? You probably saw that Morgan Stanley launched a kind of a swap or product a couple of weeks ago. And I'm sure Goldman is working on the same thing. And there are others like Galaxy that I know that are looking at this stuff. I believe that you'll

be able to offset not doing the borrowings with cheaper NDF products over time. Yep. Right. And that actually is really good for the consumer because in the background, they won't know that we're doing this, but that'll actually allow us to lower the spreads on a lot of those exchanges is over time got it no i think this makes a lot of sense and really what you're building on is you're building on the idea that bitcoin is programmable money right the you know as you get into crypto and price movements and all the stuff i think people forget you know there is a bitcoin network right which is highly secure uh and programmable right walk me through kind of the importance of that and how you guys, you know, in the future see the ability, maybe not even just

for you guys, but everyone in the industry to leverage that, you know, powerful moment. Right. Bitcoin couldn't be more perfect in its current form with one exception for what we're trying to do, right? Go back to the original gold analogy I gave you a few minutes ago where I said if I wanted to fix the value of gold to be $100, I could basically give you $100 worth of gold and then enter into a short at the same spot price immediately, and then effectively minus the cost of the short, I fix the value of the gold. If I wanted to do that with Bitcoin, I basically need three requirements to be fulfilled, and then eventually a fourth. The first is the gold has to be worth a lot of money, or the Bitcoin has to be worth a lot of money. So if millions of people

were doing this, I could break it up into tiny pieces so that everybody can participate. Second, if I have people doing this in 100 countries, the Bitcoin has to be liquid versus the on and off ramps, namely fiat bank accounts in 100 countries, right, to be able to get my money into the system in the first place, meaning my old money in the exchange for the new money, right? And luckily, there are exchanges all over the place that are relatively liquid in Bitcoin now, maybe not in other crypto assets, but certainly in Bitcoin, right? The third is I need to be able to enter into multi-sig contracts that allow Abra to act as the counterparty to those transactions in a way that allows the consumer to hold their own keys so that I don't

actually function as a bank or an e-money company or an MSB in any of these countries, right? And Bitcoin does that as well. The fourth thing that I need is I need to be able to scale these to lots and lots and lots of transactions simultaneously over time. That's where Bitcoin falls a little bit short today. But I think, you know, capabilities like Lightning and other things, for me, are showing a lot of promise in being able to address that. Because you would be able to use those layer two, layer three technologies. We would. We would because we wouldn't be, now some of them may end up being MSBs. But the key for me, pardon the pun, is that Abra itself is not going to be the MSB. We don't want to have licenses in 150 countries. You know, eventually we may have to bite the

bullet and decide to become Lightning nodes ourselves, for example. But I don't want to have to go there right now in order for this to scale. There's so many things that we're working on. Absolutely. But we're big believers in Lightning and where it's going. I would love to see that with a combination of on-chain scaling as well over time, because even as a settlement layer uh we need more scalability um in the system but i think that once lightning is working i think the core developers will recognize that even as a settlement layer we need to have a modicum of of on-chain um scaling for lightning to work as well and so that is kind of the the fourth um currently soft requirement because we're scaling okay right now but eventually hard requirement to

get to you know a half a billion consumers yep right if abra all of a sudden had an influx of 500 million users doing this, we'd be back to $50 mining fees because Abra would be driving 100% of filling the current blocks. Absolutely. The part that is so amazing to me is there's an underground revolution where people understand the power of Bitcoin as programmable money, the power of giving this technology to a global user base, all this stuff. It directly attacks the heart of what the centralized Western financial system has stood for, benefited from, et cetera, why are they not jumping in on it as fast? Some of them are slowly starting to understand it. What's your take on their perspective? So I'll challenge the idea that

some of them are slowly starting to understand it. I think that everybody is aware of Bitcoin as a digital gold asset class now. And I'm speaking relative to central banks. Obviously, there's a lot of pockets of consumers in Africa that probably don't know what Bitcoin is. But I recently spent half a day with Banco de Mexico, the central bank of Mexico, where we had a whiteboard session on how Bitcoin works, how ABRA works, how we basically give people a transition using the model I described from the old world to the new world. They had no idea that Bitcoin at its core was programmable money. They just knew it as a token that had value, right? And what's their reaction when they figure that out,

that it is programmable money. So their perspective is interesting because they recognize what a big deal remittances and money transfers are to their core economy, right? It represents single-digit percentages of their entire GDP, farmers in the U.S. sending money back home.

And so when they realize that you can use the synthetic currency model to do peer-to-peer transfers that have on-ramps and off-ramps to the peso, that they can't stop anyway, right? They're like, wow, this is amazing. Why is it that people don't understand Well, you know, again, it's the Netflix analogy of understanding how TCPIP works, right?

Just give me my account and I want to watch my movie. Yeah, exactly. But when a layman digs in and understands the power of a network of networks and the way TCPIP works, it's like, my God, this is incredible. No wonder the Internet is so amazing, right? And I think that people are having that aha moment when they're able to dig in with Bitcoin, but most people aren't digging in to that fundamental degree. Certainly not at the government level. I think obviously, you know, the cryptographically initiated are digging in and they're having those aha, wow moments. But most people are not.

Yeah, and most of the retail investors definitely won't, right? Kind of mass consumers, they'll never look into it. Yeah, but that's like asking how a credit card works. What happens when I swipe? The fact that there are four banks and Visa and other players involved is obviously, you know, people are ignorant of that. I'm actually proud of the human race that they even know to swipe the card. Getting people to understand that's a big enough task. There are 500 million kids in China who've never swiped a card but use QR codes, by the way.

That's a great point. Absolutely. Okay, so let's say that somehow heroically, governments, central banks, Wall Street financial firms, the secret's out. They figure out, look, this is programmable money. What is the farthest, most wild scenario or financial environment you can imagine being built on top of Bitcoin? Oh, I see an entire shadow banking system. And I don't say shadow in the negative kind of bad sense. I say shadow in terms of finally being competition to the man. Explain this more. Yeah, so think about a model whereby all of the analogous services you have are now able to, or now function for a poor farmer in the Philippines, as well as a rich banker in New York. And that means the ability to invest in mutual funds, the ability to invest in money market accounts, the ability to do small dollar peer-to-peer loans, where somebody in New York may be lending somebody in the Philippines, and the credit models are obvious.

and the collections use like these sophisticated multi-sig contracts in the background, but you don't have to know how they work. You're able to do payments and money transfer directly out of your account, right, with the equivalent of a Swift wire that settles instantly as opposed to three days. And it has no transaction fee but might have a, you know, 150 basis points spread as opposed to, you know, a $60 wire fee that settles in three days, right? All of this is possible via the infrastructure that Abra has built. and it's a question of our ability

to launch more features and consumer awareness and building this out along with the consumer as we go because we don't want to do too much too fast because the consumer won't be able to follow. So that effectively looks to me like a shadow banking system where anybody with a $20 Android phone effectively becomes their own bank

and can do these transactions with on-ramps and off-ramps where they don't actually have to understand Bitcoin. Now, Bitcoin can become the currency that you're overtly holding, Meaning I know that my wallet has, you know, 50 Bitcoin in it, whatever that balance is. But it can also say, hey, I've got, you know, $300,000 in my savings account, right? As opposed to that 50 Bitcoin, right? But it really is Bitcoin underneath it, right?

And so this now gives people an on-ramp and off-ramp from the old to the new world without having to understand what the value of one Bitcoin even means or what the value of programmable money means. And that's part of why I'm very encouraged by this approach, because it does give you a segue into the new world without having to completely understand all the nuances of the new world. And that's something that's been missing up until now and why I'm so bullish on what we've built at Abra. Absolutely. And in that, it's almost like it's not a shadow banking system. It's an alternative banking system, right?

Exactly. Same difference. Bitcoin can really allow people choice, right? And one of the things that I've thought quite a bit about around Bitcoin adoption itself, right? So the actual token or asset is as people begin to lose trust in whatever their currency of choice is today, right? So their fiat currency of choice, they lose trust and they start to lose trust in their government. Bitcoin is not the only replacement, right? There's other currencies, there's other things they can do, real assets, etc.

But it becomes a viable option. That's right. Right? And what you're doing is you're allowing individuals who have the most context, the most choice, the most freedom, right, to say, I want to put my wealth in X asset. Right. And previously, Bitcoin was not part of that menu. That's right. Today, it is.

That's totally right. I agree 100% with that. And when you allow that to happen, it doesn't mean 100% of people are going to choose Bitcoin. And they shouldn't, right? But today that's on an asset-by-asset basis. What you're describing is having two or more financial systems or banking systems to choose from, right? You're giving the consumer choice as to do you want to participate in a centralized one or a decentralized one. Functionality matches on both, and it's really your choice as to where you want to participate.

Now, that's a very Western perspective, right? Meaning if Anthony has a choice as to which bank he's going to use, is he going to use a decentralized crypto-based bank or is he going to use Bank of America? If you're in Africa, you don't have that choice, right? You probably don't have access to a bank today because you're not a profitable consumer for the average retail bank, right? So this now democratizes access in a way where you may not have a choice. This may be your only option. Or if you're a global middle class rich consumer, you actually do have a choice because you already have an option. Yeah, but I would argue that African countries, for the most part, are more advanced in mobile banking than in the United States.

Yeah, but that mobile banking is very limited. That's true. That's absolutely true. Look at it in terms of the three – The functionality of it. Right. The ability to do microvesting and equities is a non-starter for an M-Pesa user today. You're talking about the advanced functionality that a bank can provide to a Western user is not available to somebody not in the Western West.

The idea of a pooled stored value system, which is what M-Pesa is, has obviously tremendous value since it processes 35% of Kenyan GDP, but it's actually stopped there, right? Like it hasn't grown significantly in terms of the percentage of GDP that it's processing since it reached that kind of, my understanding, since it reached that value or level a couple of years ago because it doesn't add even more value after that. Companies have tried, but they haven't been able to take it to the next level. And I think a lot of that is a function of the fact that they're now hitting walls in terms of compliance and other rules around what they can do around KYC and other things within that existing framework. Absolutely. Yeah, it's funny because, you know, we've thought a lot about a thesis. I actually don't know if we even agree with this. Right. But this idea that citizens in African countries were able to leapfrog American mobile banking standards or kind of functionality to some degree. right so in certain situations they actually have better mobile banking than we do we have more advanced functionality we've got access to certain things they don't but but for the most part in the

things we go head to head on they've actually been able to leapfrog us crypto provides an opportunity doesn't mean that it's going to happen but it does provide an opportunity for a lot of the unbanked right or these uh people who are already familiar with mobile banking to leapfrog the u.s western centric centralized financial system yeah and if that happens access to capital access to credit right all of these things that we know drove massive uh advantages for the u.s especially through the industrial revolution and all this stuff if that becomes available to the rest of the world we're going to see some pretty crazy innovations we're going to see some pretty um crazy uh wealth redistribution you know all of these things that can come from it and it's a net

positive for the world. Absolutely. Like I said, for us, the idea that we can democratize access to financial services, I have tried a lot of different ways to do this. And I mean by literally putting my money where my mouth is. I ran Boom Financial, which was trying to deploy mobile banking services in developing markets. I ran a foundation in Haiti where we were using old fashioned T9 text input a la M-Pesa to open up simple bank accounts for consumers to receive remittances from taxi drivers in Miami, meaning their family that's sending money back home after the earthquake. And we hit wall after wall in terms of regulation, being able to get access to local bank accounts to pull those stored value systems. And eventually I gave up and, you know,

Digicel, which is our largest shareholder, took over the company. And they use it as their mobile banking platform. But that wasn't my vision. My vision was to have a single system everywhere. And now with Abra, we have that system today. We have users in over 100 countries out of the gate, right? I think I have three people more or less full-time in compliance. We take compliance seriously, but it's right-sized for how we work as a company, not ruled by compliance, right? It's the opposite approach of the banking system. We do take it seriously, but the fact that I'm not storing your money liberates us in a way where we can look at this from a consumer-centric perspective as opposed to a government-centric perspective. Yeah. So I think there's a lot of

people listening to this would ask questions like, how do you stop terrorists from using it? How do you stop the... Every single system, every industry, bad people do bad things, right? So it's not that crypto is bad. It's just if you're a bad person and you want to do something, choose your financial system, you're going to do something bad. How do you prevent that stuff if the model looks different than the centralized financial system? Yeah. So Abra is a multi-sig Bitcoin wallet. It's not an open source Bitcoin wallet, right? So where it's one key, one transaction. That means it's almost impossible for a consumer to hide themselves within the Abra network. We don't do KYC on a consumer until they touch the banking system. So

if you just deposit Bitcoin into Abra and store that as fiat, I actually don't need to know who you are, right? Because you're not actually touching the banking system in any way, and I'm not holding your money. Now, that having been said, 100% of our transactions are on-chain, right? So for the average consumer, you're not going to hide yourself, right? And the FBI has basically said, hey, we like Bitcoin for exactly this reason, right? So the first thing that happens when you start Abra is we check your IP address. And if you're in an OFAC-sanctioned country, we're not allowed to let you use the app, right? So those users are out. Yep. I don't like that, but they're out, okay? And then the second thing is, is that, like I said, all these transactions

are on-chain, right? Which means that if the FBI wants to know, hey, here's my subpoena. I want to know the phone number for anybody who did a transaction from this IP address. I have to give it to them legally yep yep right i think it was a de-agent who told me one time uh every criminal when they commit the crime i want their hand on the keyboard yeah right absolutely so and but but it's a bit of a red herring and and look i'm not an anarchist i am a libertarian um i do believe you know a certain rule of law is is essential for the functioning of society but at the same time uh i also you know one of the kind of core principles and values of abra is we believe in the rights of the individual to freely conduct business that doesn't harm other individuals,

right? And we believe very, very strongly in this as a guiding principle. And I think most people at their core would be very hard-pressed to disagree or to take umbrage with that as a core value, especially if it's not hurting anyone else, which by definition our belief is it can't be. And so that having been said, by the way, the biggest money launderers in the world remain U.S. banks, whether they're winning participants or not, right? Now, I've had this conversation with people from the OCC and others, and they roll their eyes at me, but they don't prove me wrong, right? Because they can't. It's like proving a negative, right? So in their heart of hearts, I think that they know this is true. They throw up their hands at it, but they still

basically, you know, force banks to spend an insane amount of money, right, policing the good consumer in theory, at the expense of the bad consumer. It is, I don't know, a day, two ago or whatever, more bankers, I think these ones got arrested or going to jail for rigging interest rates or something. There was the bank in, I think it was Estonia, right? Like one single location laundered like a hundred billion or more, right?

It's just, again, bad people are gonna do bad things regardless of the industry. Yeah, the only two industries that I'm aware of that are actively required to police people in advance to this degree are health care and banking. Now, in health care, I get it, right? I don't want people giving me shit that, you know, is going to kill me without actually having tested it, right?

But the recourse after your death is a lot harder, right? Yeah, exactly. Thank you. And I don't even know if my family is actually going to go after them, you know? So there's not much comfort there. But the idea that the banking system spends, like, hundreds of billions of dollars a year doing the same thing, right?

And you can actually measure the return on investment as being effectively zero, right, just makes no sense. Now, I totally get going after criminals, and I'm all for that, but that's not what we're doing, right? We're basically policing 100% of the people in order to prevent the criminality in the first place, and we've effectively failed at the same time because the criminals still managed to get through the cracks, right?

So do a better job of going after the criminals and disincentivizing them. My guess is that would cost a fraction of what we're spending now. Yeah, it is. I just I always say bad people do bad things because it really does encompass no matter what rules you put in place, no matter what you do, if they want to do it, they will find a way. Right. Right. And if it's not, you know, the fiat system in terms of electronic money, then it's going to be cash. If it's not cash, then it's crypto. If it's not crypto, it's whatever's next. Right. And the cat and mouse game is, you know, look, it's difficult. Right. I actually come from the mindset of I wouldn't want to be a regulator. Right. Not because I don't agree with what they do or anything. It's because it's a hard job.

Yeah. Right. And they're personally not incentivized in a way that they are rewarded for being successful. Right. Right. And so imagine going to work every day knowing that there's people around the world who are using, you know, money in whatever form to do illegal things. And your job is to catch them. Right. Now, remember, the regulator is the messenger. Right. They don't set the policy. They interpret the policy set by legislators, or they're given a certain leeway to set policy, but it's also a mandate from legislators. It's the legislators that traditionally don't understand

the nuances of the banking system enough to understand that it doesn't make sense to proactively police every consumer in terms of a return on investment. But that doesn't translate into votes, so therefore they're not willing to dig deep enough to understand the nuance, right? You, what are the odds that a U.S. lawmaker is a user of Abra? Very high, because I've met with enough of them and seen them install Abra, where I know that there are at least a couple.

But that's not only true in the U.S. I've actually been in meetings with other bankers and central bankers who've installed Abra. And whether they know it or not, I've actually seen them do it in meetings. And so actually the odds are 100 percent because I've seen it. But yeah, that's amazing. All right. So before I end, I usually do a kind of rapid fire set of questions. Other than Abro, what do you think is the most important company in crypto? Oh, wow. The most important. I love BitGo. We were talking earlier about the news on BitGo's

funding. Big fan of Mike Belshi, who I work with at Netscape. I think what they're doing is very important. I think the idea of doing multi-sig wallets correctly adds a lot of value. So they're company that comes to mind first got it uh what's the most controversial thought you have in crypto if you said it people would disagree with you um exchanges are not crypto exchanges are sql databases and people that manage their own keys are actually in crypto so oh so people who use exchanges are not in crypto yeah they're getting ious to crypto and anybody who's had their money hacked and lost forever can appreciate the nuance of that statement yeah absolutely um if you had a had a magic wand and you could wave it and change one regulation or improve one regulation, what

would it be? I would change FinCEN's guidance on people not having to register as money transmitters to exchange cash for crypto. Why? Because it makes no sense. I mean, they don't regulate people exchanging baseball cards for cash. What's the difference, right? So where does it stop? What's the difference between postage stamp, crypto, baseball cards? The guidance makes no sense whatsoever. If I want to own crypto and I want to be able to exchange it for cash, it's ones and zeros in a person-to-person cash transaction, I should be able to do that without having to tell FinCEN what I'm doing. I think that's fair. Right. What is your one memory of Netscape that people don't know about, but you think encompasses your experience there?

I'll give you two. One is, the first memory is fighting the kind of export rules. And that led to the creation of a company called Brocat, which ended up going public for a multi-billion dollar IPO to allow Java applets to be installed locally because the company was based in Germany to allow banking users to get around the strong crypto rules, which was insane, right? I mean, that company didn't need to, I was happy for them that they made money, but it didn't need to exist, right? And then the second was, you know, going from e-commerce project to e-commerce project. For example, I remember another project, I mentioned Germany, I'll mention it again.

You know, I worked on a Springer Philog project of putting all of the newspapers they owned in hamburg and berlin online and this was their first exposure to the internet as companies as companies right and that was so foundational um like it's today it sticks in my mind is like i got to take part in something historical and i feel and the reason i that sticks out to me now is that i i know in my heart of hearts that's what's happening right now with crypto you know yeah it's so crazy just the energy and and the uh the potential impact i think that you know when people kind of it clicks over right and they say oh wow yeah you can you can literally see it in their eyes yeah yeah um all right so uh non-crypto question okay we just have to admit that aliens

exist okay um usually in sci-fi the aliens are human-like uh you know characters do we think that there's alien animals like do the aliens that we think of as the human-like type aliens do they have pets well i think the distinction is sentience right uh i would venture that there's probably more non-sentience uh as aliens and there are sentience just given the likely evolutionary state of aliens um but that you know whether or not there's any sentience out there besides us i have no idea but i obviously the the the numbers dictate that there are plenty of of alien animals out there whether they have our level of consciousness uh and you know we can all jokes aside about what that means for the average human but uh you know is is is debatable obviously

listen i i asked this question to everybody and uh i am convinced that on a pure mathematical basis not only do aliens exist right but the bigger question for me is are they looking for us right right you know look are we the idiots who are just looking for everybody else and everyone else could care less about us yeah i mean it's a big universe um people can't even comprehend how big the universe is i certainly can't uh they're out there there are sentients mathematically speaking who are looking for for us being a euphemism for someone else obviously the chances of them finding us are pretty close to zero mathematically speaking given how big the universe is um but you know in 10 billion years who knows where evolution will allow us to have gone where we

made a sense each other, right? Yeah. I'm waiting for them to show up, jump off the spaceship with like alien dogs and we'll go grab a beer at a bar. Yeah. Or just turn around in disgust. Oh, you guys got those too. All right. Exactly. All right. Before we end, I always let everyone ask me one question. What one question would you ask? What do you think crypto is going to mean to the average consumer in five years or 10 if it's too close so yes i'm a big fan of bill gates quote you know we overestimate what we can do in a year and underestimate what we can do in 10 uh i'm going to change the question a little bit and just say like let's 20 like very long okay frame right um i really think that crypto's got a shot to take down the entire centralized

financial system right and i don't mean that in like an anarchist way i mean that in the gold The Morgan Stanley's, the JP Morgan's, et cetera, are going to say this system, if we can figure out how to, you know, kind of corral the power of it, we actually can build better businesses. Yeah. Right. The example I usually use is so the companies in the Internet age that figured out growth hacking. Right. They are the companies that are the powers of today. Right. So this is the Facebook's, the Twitter's, the Google's, et cetera. They figured out how to use the Internet to incentivize people to do things. I think that the people who understand and figure out how to do that in the decentralized world, it's going to be magnitudes bigger of wins. And some of that has to do with just the global nature of this.

And, you know, we forget that many of the companies that we look up to today as these magnificent, you know, entrepreneurial endeavors that drive billions of dollars of profit. they're not available in some of the largest countries in the world and so what happens when you get out of a system where innovation and entrepreneurship is driven by regulation and you allow humans all around the world to conduct commerce to build businesses etc i think that we we actually are underestimating the power of crypto you know blockchain the decentralized world and so if that is true look at just finance and that's why i asked you know the question like how like what's the wildest scenario right i would argue it's not even a shadow or an alternative system yeah what if it becomes the system right and happens within 20

years yeah i've always believed that access to commerce is the ultimate tide that raises all boats yep right it's a good point yeah and and i think crypto in that regard is simply the ultimate example of software eating the world absolutely to provide that that access absolutely so i obviously agree with that point yeah look and and i think that um you know for me specifically the ability for people around the world to have a level playing field right you're not going to correct the inequalities of yesterday by you know coming in governments giving money or charity or You know, all this stuff is, yeah, maybe it makes a little bit of a dent, but it's not really going to level the playing field. I'm a huge believer that if you give everyone the same tools and you give them access to information, education, you know, communication between themselves, et cetera, they will surprise you by what they're able to accomplish.

Right. And I think that crypto is doing that in a very interesting way. And that's kind of why I lean towards we're probably underestimating this whole thing. All right. Well, I look forward to the reunion podcast. 20 years from now, we'll see what happens. Yeah, exactly. All right, man. Thank you so much. I'm a big fan of what you guys are doing.

So I appreciate you coming on. Appreciate it. This was awesome. Thanks for having me. All right, guys. We're here back with John Belisere, the CEO of Saluna. You can check them out at saluna.io. So, John, I noticed that you guys are issuing a security token.

Why did you choose to do that rather than an ICO? So, great question. Obviously, ICOs have been the talk of the whole cryptocurrency market because they've been able to raise hundreds of millions of dollars for a host of different projects. globally. When you look at our project, you know, you're talking about a $2 billion project that we will build out in a series of phases. And when we looked at that strategy, the investors are going to be participating in this, are going to be institutional investors. And what appeals to us from an STO perspective is the structure is really tuned to that type of investor. It's merging traditional financial services and security regulation with the power and technology that

comes from the blockchain. So we like security tokens for really four primary reasons. The one is the first is transparency. By putting the token and the security that we're offering to fund this project on the blockchain, our investors have much better transparency into how we're approaching the project. The ownership for us is also transparent. Number two is liquidity. Most energy projects don't have very much liquidity. And imagine a two billion dollar project that has to be developed over several phases, and then the project sponsor has to find someone to buy that multi-million dollar project before liquidity can occur for the investors. But now, if you invested $10 million or $100 million in the Saluna project, you could use the liquidity feature,

if you will, of the STO to sell a portion of that if you needed to provide liquidity for your fund, for example. And then number three, the fact that we're doing this on a digital platform, we're using sort of these new STO marketing platforms to offer the security, it greatly reduces the overall cost of issuance and compliance around this. And then number four is security. So it's, you know, it's a platform that's really allowing us to provide a security that has all of the relevant due diligence and protection that you expect as an institutional investor. So ICO versus STO, STO is the natural choice for us. Absolutely. Well, they heard it here first. So I appreciate you coming on and talking more about the project. You guys can find out more

if you go to saluna.io. Hey everyone, Pomp here. If you like this episode of Off The Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us favor and rate, review, and subscribe. To review, simply go to the Off The Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off The Chain.