Unchained - How Crypto and Blockchain Technology Could Change Financial Services - Ep.97

Episode Date: December 16, 2018

This is a special episode of Unchained from the CME Global Leadership Conference in Naples, Florida. There, I spoke with Arthur Hayes, CoFounder and CEO of Bitmex, Dan O’Prey, chief marketing officer of Digital Asset, and Alexis Ohanian, Co-Founder & Executive Chairman, Reddit and Co-Founder of Initialized Capital. We cover how public and permissioned chains will compete or complement each other, how blockchain technology will affect incumbent financial services, and how it has already proven itself (hint: as a store of value is one answer). We discuss whether or not crypto represents a new asset class, why the crypto winter is helping to improve the space, and what the launch of Bakkt and Fidelity Digital Assets could mean going forward. Thank you to our sponsors! CipherTrace: https://ciphertrace.com/unchained Microsoft: https://twitter.com/MSFTBlockchain Episode links CME's Global Financial Leadership Conference: https://www.gflc.com Arthur Hayes: https://twitter.com/cryptohayes Bitmex: https://www.bitmex.com Dan O'Prey: https://www.linkedin.com/in/danoprey/ Digital Asset: https://www.digitalasset.com Alexis Ohanian: https://twitter.com/alexisohanian Initialized Capital: https://initialized.com Unconfirmed episode with Tom Jessop's Fidelity Digital Assets: http://unconfirmed.libsyn.com/fidelity-digital-asset-services-tom-jessop-on-why-its-serving-institutional-clients-first-ep043 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, Laura here. Two announcements. First, this is a special episode of Unchained from the CMEE Global Leadership Conference in Naples, Florida. There, I spoke with Arthur Hayes, co-founder and CEO of Bitmex, Dan O'Pray, Chief Marketing Officer of Digital Asset, and Alexis O'Hannian, co-founder and executive chairman of Reddit and co-founder of initialized capital. We cover how public and permission chains will compete with or complement each other, how blockchain technology will affect incumbent financial services and how it has already proven itself. Hint, as a store of values, one answer.

We discussed whether or not crypto represents a new asset class, why the crypto winter is helping to improve the space, and what the launch of the Act infidelity digital assets could mean going forward. It's a great episode. Hope you enjoy it. The second announcement, in case you haven't heard it on the regular Tuesday episodes, is that The 100th episode of Unchained is coming up, which is crazy. So for the 100th episode, I want to hear from you. You might have heard that I'm soliciting voicemails and audio recordings from you and past guests.

I have a bunch already that have rolled in. It's super fun listening to them. I love these messages. They are great. Thank you to every one of you who sent one in. If you haven't yet, and you want to join the fun, and also if you want to hear yourself on a show alongside Cryptolumineries, such as Spencer Bogart, Once's Casares, Kyle Simani, and Jimmy's song.

Be sure to send me your message or recording. Tell us your name, where you're from, and anything else you'd like to say related to the show, or you could even just speak about crypto generally. You could talk about what you've learned from Unchained, your favorite moment, or guest, how you listen, or honestly, whatever else you'd like to say as long as it's crypto-related. then finish it off with a prediction about what will happen in the crypto space in 2019. You can easily record a message on the voice memos app of your smartphone, or you can use an app on your computer.

If you do it one of those ways, then email your file to Laura Shin Podcast at gmail.com with the subject line 100. That email address again is Laura L-A-L-A-S-H-I-N podcast at gmail.com and use the subject line 100. Or you can call and leave me a voicemail message at 9-17-675-4882. That's a U.S. number, so my international fans should use country code one. Again, that number is 917-675-4882. As a reminder, tell us your name, where you're from, whatever you'd like to say about the show or crypto generally, and then round it out with a crypto prediction for 2019. The deadline for these submissions is Thursday, December 20th.

I look forward to having you all take over the show. Within months, cryptocurrency anti-money laundering regulations go global. Are you ready? Avoid stiff penalties or blacklisting by deploying effective anti-money laundering tools for exchanges and crypto businesses, the same tools used by regulators. CypherTrace is securing the crypto economy. Do you have an idea for a blockchain app but are worried about the time and cost it will take to develop? The folks at Azure have you covered. The new Azure blockchain dev kit is a free download that gives you the tools needed to get your first app running in less than 30 minutes.

learn more at AKA.ms slash unchained or by following them on Twitter at MSFT blockchain. Hi, everyone. Welcome to our panel, crypto and or the blockchain and the crypto revolution. I'm really excited to be here and to talk with you about what might be a little bit less familiar to all of you than some of the other panels today. Why don't we start with a little introduction from each of our panelists? We actually selected these panelists that kind of magically represent sort of the spectrum of things going on in this space. So Arthur, why don't you start? So Martha Hayes, co-founder and CEO of Bitmex. We are the largest trading platform for crypto.

We do about two and a half billion U.S. dollars a day of transactions on our derivatives on our platform. I'm Dan O'Pray. I'm the chief marketing officer at Digital Asset. We're a blockchain startup in the permission space dealing with solving problems for traditional financial institutions and traditional assets, headquartered in New York and led by Blythe Masters. And we've been around for about four years now. I'm Alexis Sohannian, previously co-founder of Reddit and now co-founder and managing partner of a seed stage venture firm called Initialized Capital. And we've made a few crypto investments. We're early investors in Coinbase, D-Dex, CoinTracker, and a few others. So now I want to get to know you a little bit. I'm just curious to know. How many of you feel like you could comfortably give an explanation of Bitcoin to another person?

Okay. How many of you feel like you could comfortably explain what a blockchain is to someone else? Okay. And what about Ethereum? How many of you feel like you could explain that? Okay, a little bit less. All right. So we actually have some decent fluency in the room. But why don't we start with at least a slightly more basic question? And through this, I think you'll get to understand sort of the spectrum of views that we have in this panel. But the Bitcoin White Paper came out about 10 years ago. And since then, the technology has developed in numerous ways, many of them unpredictable. And I'm just curious to know what each of you think the future. of this technology will be. You know, why are you in this and down the line, how do you think it's going to change the

world? And frankly, also, how will it change the lives of the people in here who work for financial services? All right. All right. First. So I got involved in Bitcoin when I lost my job in 2013 and I started trading at full time for a job.

And then I got into trading derivatives over that period of time. And what really struck me about Bitcoin in the whole crypto industry is for the first time, You basically have direct market access for people who otherwise wouldn't interact with financial markets, especially in North Asia where I've spent the past 10 years of my life. It's really compelling to see you can open a smartphone, open up an account, and start trading pretty quickly in this new asset class. And I think 24-7 trading of all types of different assets is something that's going to be the future, and that'll bleed into the other markets that we're all familiar with, you know, FX, fixed income and equities. So my journey started in this space in 2014. I started a company called Hyperledger, where as a co-founder and CEO. And really, that was one of the first sort of what now become known as permission blockchain. So recognized Bitcoin and personally was very, very fascinated

by it, but realized that part of the technology, that's one specific use case, peer-to-peer electronic cash. And there are a lot of properties of that system, which are ingenious to solve that particular problem, but started to look at how we can actually apply that technology to traditional commerce and traditional financial systems. So really, it was about looking at that permission technology where you know your vendor, you know your customer, but you still get a lot of the same benefits that you do on the, on the crypto side or the public side, of freeing up these siloed assets and complex workflows which introduce risk and latency in the systems. So, that's...

The enterprise space is a little bit younger than the crypto space, really, has been about four or five years now. But it's very much coming to the point now where we're moving into production with some of the largest financial institutions in the world. And I think the audience here on the enterprise side can benefit a lot from having that real-time data, the auditsability that you have with public chains, but still keeping information confidential and secure and allowing you to actually innovate a lot more. faster upon that base.

I first got exposed to it on Reddit, of all places. Those early communities were largely, you know, technologists and crypto anarchists. And it was the world of hobbyists. You know, I personally held some for a while now just as a curiosity. And when initialized, made the investment in Coinbase, I believe it was 2011 or 2012, was that seed investment. And at the time, you know, Bitcoin is probably at $5. The idea then was, hey, if this works, this can be this currency of the Internet.

Now, with the benefit of hindsight, we're still not there yet, clearly. I do think as a store of value, Bitcoin has been, and this is particularly for people outside of this country, has been a tremendous resource. And we're already seeing even anecdotally money getting moved out of countries on thumb drives, where gold is literally being confiscated from people as they make their way out of, there was an example, a friend of mine tweeted a few weeks ago, out of Venezuela,

but they were able to get that currency, the currency they had stored digitally in Bitcoin, out and safely. And so as a store of value, I think we already have some really good proof points, and even though those currency swings seem rather intense, to someone who's lived in a nation where there is even more political uncertainty

and even more currency fluctuation, Bitcoin actually doesn't look so bad. And now what I'm really excited in is investing in companies that are building infrastructure-level technology to do hopefully a lot more using the blockchain as a technology and not really paying any attention to currency speculation. So I think you've just heard here we've got these sort of like parallel tracks almost, you could say. One is using the technology in existing financial services. as the other is using it in what I call creating this parallel financial system almost. So I'm just curious to know, like, how do you think these two tracks will develop?

Will they be in competition or are they in competition with each other? Are they going to converge in some way? Do you see private and public blockchains working together in some fashion down the line? So when sort of started in the permission space, I was hanging out with those crypto-anacists and Bitcoiners, of which I am partially one myself. When I started doing that, everyone was saying, oh, you know, you found Bitcoin and you're here to build something better or I'm here to improve Bitcoin. That's not at all what we were trying to do. And really, I see them as completely independent tracks that aren't competing. They're just two very different applications of the same technology. That in some ways happen to look very similar with the solutions and in some ways are entirely different. So if you're not building a peer-to-peer electronic crash, which really the key property is censorship resistance. If you're trying to apply that to institutions who have those, who have physical locations who abide by regulations,

who have obligations to their customers and to their shareholders, censorship resistance isn't really something that most people here are trying to solve for. So it's a very different application. Some of the same underlying technology is similar, but yeah, do not seem to competing. Anybody else have an opinion on that? I'm curious to know what the public blockchain people think. Yeah, I mean, to this point,

If you don't need censorship resistance, why would you ever use a public blockchain? It's extremely expensive. It's extremely slow. And you have to have a totally different toolkit of engineering skills. The coding on the actual Bitcoin D is actually pretty difficult, and which is why Ethereum is a Java-based sort of scripting language and makes it much easier for people to get into it. But if you get it's an enterprise and you want a better way of transferring data

or a better database than no private you know dlt type blockchains are for you you don't really need to interface with bitcoin or some other public chain yeah yeah the first question we ask when we see these crypto pitches is does this even need a blockchain or even does this even like can a just standard basic database just solve this problem because there is this there's this hype cycle that we've gone through and that we're fortunately at the outside of it now, but people will just try to shove, like, they'll just try to shove a blockchain in anything, where it doesn't actually make sense at all and where a traditional database is actually perfectly secure and perfectly reasonable.

If anyone recalls Long Island blockchain might be a good example. For instance, yeah, literally putting it in a stock name just to take advantage of the hype. Yeah. It's a bad idea. So, speaking of, though, investments, there is this view that crypto represents a new asset class. And Morgan Stanley recently put out a new report saying that that's what they thought that it was. What do you guys think? Is that something that is true or not? What's your take? I think it's sort of a blend. It's still extremely small. I think the market caps, what,

$200 billion? Apple has more cash in its balance sheet than the whole value of the industry that we're talking about. So it's insignificant in terms of where it is today. Could it becoming a bona fide asset class in the next 10 years, maybe. It's still juries out on whether or not Bitcoin is actually secure over the long run. It's, you know, had a decade, which is pretty good, but it's still an experiment. So I say, you know, juries out, but it looking like it could be a new way of raising capital, sending value around the world. Yeah. I was really tickled by all of the talk of VC being dead because of ICOs. Now, this part of this was my own self-preservation instincts, right? No one wants to think that they're going to go extinct. But I have to be

self-aware enough to think, okay, well, like, we believe we can do everything in tech, better, cheaper, faster, why not VC? But we've seen from the ICO surge and then crash and all of the just garbage coins and money scams and just awful things that they really should get prosecuted to the fullest extent, because there was, I mean, actual Charlotte and was taking advantage of people. But we've seen now this kind of realization that maybe there is something more here, we just have a long ways to go and need to be building really earnestly about it.

And as an asset class, I mean, I aim for about 10% of my net worth in crypto. And my bet simply being that if this future that we hope for technologically pans out, this will be a really material investment, but it's still tremendously risky. That's interesting.

And when you say that, are you holding your own private key? In a couple of cases, for some of the more speculative coins. But for the others, they're actually just stored on shameless plug, Coinbase. And I trust their security better than mine. Well, so actually, let's talk about that. Like, you know, this is kind of a new paradigm, right? Where this is, when people use digital money now, it's generally in the, it's under the purview of a bank where they can call the bank and say, hey, something bad happened, you know, there was a progenre in charge or whatever.

So how do you think we can get, like, real adoption? Is it going to take a lot of education? What will it take for both institutions and people to get into the space and to safely hold on to their coins? We've got to make money at the end of the day. So, you know, institutions need to look at Bitcoin or Bitcoin trading probably is the easiest thing for a financial services institution to look at. And, okay, can I make five to ten bucks for a seat for a dude sitting there?

or women trading. Most likely probably you will not make that amount of money, which is why you've seen some of the banks backtrack their crypto desks, or they've sort of put them on the back burner. So it's really about how much money can you make. What's the volatility? What's the volumes? You know, we've sort of come off about 70% in terms of the price this year. Volatility's down massively. Exchanges are firing people. So it's a very volume-driven business, and there's no volume, and there's no excitement, and, you know, the institutions won't get involved. the end of the day, it's can you make money trading it? And if the answer is yes, they'll find a way

to do it. Yeah, I think there's still a lot of infrastructural pieces that need to be built out. When you compare, you know, the traditional equities market to the crypto markets, they still look very different in terms of, to your point, you know, holding your own private keys or custody solutions. You've got exchanges where a lot of the focus has been in the initial days, but operating as custodians and as central securities depositories in many ways. And there's still sort of one, you know, even more centralized ironically than traditional finance is, which has multiple different legal entities playing different roles within that service. So I think that we'll need to start to sort of tear away different aspects and different

roles within the market to allow institutional access to really arrive. And that is being built now. And then to your earlier question on perhaps how you see these two converging between the permission world and the crypto world, I think that could potentially. potentially be a very interesting match where you're actually using the public chains essentially as a settlement layer of the ultimate underlying asset. But all of the financial workflows and the lifecycle management around that could be done on a permission distributor ledger amongst traditional financial institutions. And speaking to custody,

we've invested in a company in Canada, I wish I could tell you about, but they're not public yet, but they're working with a big B bank. And I think this is a perfect example of the kind of infrastructure your investment we want to make because like it or not, every industry is going to be a software industry, and especially when it comes to crypto, these are banks that we protect not with guns but with code, probably some guns too, but the strength of your security really, really relies on the strength of your engineering. I can safely say that even in the valley, the best startups are fighting for a very scarce resource that is extreme top engineering talent. And with such high competition among the most appealing companies for an engineer to work for,

that does not leave many options for the Fortune 1000. And so a big trend we're seeing, especially at early stage, is companies with top flight engineers who are starting their own businesses, building software and solving these problems at an enterprise level now, where like 10 years ago they would have done a software-as-a-service business where like you take out your credit card for $10 a month, you can sign up for Dropbox, right? Now, what started as a little interesting project by Drew, now a multi-billion dollar company, but today we're seeing that engineering talent go straight to enterprise because they know they have this unfair advantage

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moves by Wall Street to figure out where all this stuff is going because here in 2018, we've seen this massive bear market in the crypto space. And as we talked about, the speculation from ICOs is dying down. And yet Fidelity is launching trading for institutions and backed now this joint venture by the Interconsinental Exchange and Microsoft and Starbucks is going to launch. So why do you think we are starting to see, I guess, traditional financial services get into this space despite the lack of adoption in the bear market? Well, they probably started planning it in, you know, last year, in the fall, things were going to that batchy crazy, and then now it takes a while, like, you know, get

ramped up, and you launch it to a massive bear market. So I think it's probably just the path dependency of when the decision was made, versus actualizing the actual product. I'm sure if you had to pull these same executives today and say, please go to your board and approve a Bitcoin, something or other. Right now, they probably get show on the door. So I think, you know, luckily they've gotten it through, you know, the community that they need to get through,

and we have new products to address new markets that are going to be coming online. But I don't think that's any verdict on Bitcoin being any better or worse right now. Yeah, I think, you know, the key point there, is the lag between, you know, enterprise software is very hard. It takes a long time to do right, particularly when you're building or replacing mission-critical systems at systemically consequential markets.

And so, yeah, I think that these projects probably started a long time ago, but they're also probably looking at the long-term trend here. This isn't just a, you know, what's the price today and what's the interest? So they're building out the infrastructure to enable access to this. That, frankly, their customers are demanding. and want to see. And so, you know, we are seeing that, you know, the fruits of that's starting to be born now, and I'm sure that will continue next year.

Yeah. And I still, I deeply believe that this is a worthwhile investment to be making now. We're obviously all on a panel all about blockchain, so we believe this. But I feel really privileged because we have a front row seat to all these emerging technologies. And I literally every day I'm meeting with founders who I have to decide are going, are they going to credibly build the future or not? But a very small percentage of them actually do succeed. And there's a disproportionate number of very smart, very driven,

sort of credible founders who are building the infrastructure around the space right now that leads me to believe that there are real solutions that are going to be made here. And the best part of this crypto winner is it scared away a lot of the charlatans and scenesters. The people who are building on crypto right now, who are, you know, credible builders who come from companies, they don't have to, but who have come from companies where they shipped real product, who are smart, who are driven. Like, the ones who are building right now and who are building in the space are very encouraging.

Yeah, and from my point of view, it's good to see that hype fade to a certain degree, both on the crypto side and on the enterprise side, because, you know, as Alexis said, there's so much more focus on what's real. Things like CryptoKitties get attention because they're fun and it brings Ethereum down. But now that the hype is starting to dissipate and there are actually real projects emerging that have often been a little bit quieter than some of these very high-profile funner or crazy use cases. But the real projects such as the one that the ASX have, the Australian Securities Exchange, they're literally replacing their entire post-trade system for equities.

with a distributed ledger, with a digital asset platform. And that is going into production in Q1, 2021. But, you know, it takes time. But as the hype dissipates, people will focus more on what's real, what business problems can we actually solve, because ultimately that's where the biggest returns are going to be. Yeah, the part that has me so excited are the things, if you think of that ledger as like a physical book,

like literally an old school ledger that says, you own a small share of blah, blah, blah, And you paid this much for it, and here you go. Thinking of that as a global book that everyone has a copy of that we can all check in sort of real time is very appealing to me because it can replace a lot of things today that are so boring but necessary in systems where there isn't sort of trust. And that usually involves lawyers and accountants. And I almost was a lawyer. So maybe I'm still bearing some grudges against that industry. But there are so many needless hours that are wasted by humans.

that's work done by lawyers and accountants, that can be replaced with a kind of ledger. And we're seeing this where, you know, there are some interesting projects around everything from like real estate to you name it, where it is really beneficial to be able to use software to decide ownership and create markets that literally never could have existed before because to take fractional shares of ownership and actually trade them would have required an insane amount of tedious time and work

and just wouldn't have been viable. But these are in their infancy right now, and so I can imagine having tried to buy into a commercial real estate project as just an individual accredited investor and just even seeing all the emails and signatures and PDFs, it was long screaming for a software solution, and this is one where, for instance, a technology built on blockchain can really solve it scalably

and create some really interesting new financial operations. opportunities. Let's put it in that because I actually want to come back and ask you a little bit more about that, but I also want to go back to what you were saying before where, you know, we started by talking about these moves by these traditional financial services firms where they're going to start trading Bitcoin and Ether and stuff like that. But then you were also talking about what you're investing in and what developers are building. How do those two relate to each other? Because on one side, it just sort of seems like trading and speculation. And then on the other side, it's like building technology. So what, how did those kind of? Well, I think it's, some of it comes down to founder expertise and background. And there are the really interesting infrastructure solutions that are being built now for the enterprise are usually coming from founders who have spent time there, who already have the relationships, who saw this. And at us, you know, they were, they were tabbing into their R slash Bitcoin subreddit during work hours with their wheels spinning, trying to figure out a way to do their day job in the financial world, better, cheaper, faster using the software. But we definitely see these two camps.

There's the founders building tools to solve problems. CoinTracker is one that lets just retail investors just better track their crypto taxes, which is a very important thing, a bunch of taxpayers learned last year. And to build software to do that, because, you know, turbo tax out of the box is not handled to equip calculating your tax exposure from all of your trades across your seven different exchanges or what have you. And so there's that sector, which is still sort of working to just solve problems for the average consumer. But then there's this infrastructure one that folks here have been talking about where they're not getting headlines because it's not as cute as crypto-kitties.

But because someone has a relationship to the financial world, they know what it needs and they're willing to do the long slog of development that could, I mean, very well take years before they even get something to their customers, but they're willing to take it because they can see 10, 20 years ahead, and it doesn't seem like there's any other way to do it. Yeah, I think I completely agree with everything you just said. I think we're a particularly fun mix of that was a lot of the people. I'm a bit of a sort of naive optimist when it comes to technology, you know, looking at it, what can we do, what's possible, and then partner that with people like our CEO, Blythe Masters

who have been there, done it at, you know, J.P. Morgan for 27 years, who actually know why things are the way they are. And it would be nice, you know, someone to disintermediate CSDs or make real-time settlement, you know, T-Zero across the board. But there are practical reasons why this is not possible or take an act of Congress to actually change some of these regulations. So that's probably not the best thing for a startup to be trying to be taking on. So instead, you know, we're working with those same institutions and they recognize that too,

and they are actually adapting and evolving. So I agree you've got to have that, that mixture of, of, the deep experience of being there, done it across the board, and then also a little bit of new startup and enthusiasm to keep going for as long as it takes. Well, so, but I am curious because I feel like these are still, you know, pretty different tracks to, one, being this what they call decentralized finance track where it's not a company, but it's this team of developers, and then they, you know, get this crypto asset and incentivize behaviors on this network.

And I see these developers. they're building decentralized money markets or decentralized derivatives or decentralized exchange. And I'm just curious, how does that end up, does that end up really competing with traditional financial services down the line? Or do they work together in some way? Or what's the vision there? I don't think most of these things are actually decentralized. I think a lot of this talk about the centralized whatever service is bullshit because at the end of the day, I think recently the Ether Delta that the founder was

paid a $400,000 fine of the SEC for her so-called decentralized application. So they centralized fine right on him for his decentralized application. I think I also read IDEX, which is a larger decentralized exchange, is now instituting KYC

on their platform, which is kind of incongruous with this whole aspect of anyone can trade, but then we're doing KYC on you. So obviously somebody's afraid that they're going to prison for something, which then means it's not really decentralized. So I think a lot of these, this decentralized is just a way to get money from people who don't know what they're talking about or don't know what's really going on behind the scenes.

So really the only pseudo-decentralized asset out there is probably Bitcoin, and that's not even that decentralized in and of itself. So I think we have a long way to go before we get to this utopia of decentralized applications. We really have a lot of centralized moats in different parts of the ecosystem. Yeah. Yeah. This is like, Much to the chagrin of a lot of the crypto anarchists who I'm sure got, were most excited earliest, the sort of earliest adopters of Bitcoin. I do think ironically most of the applications are going to end up looking very much like the traditional financial sector, just done better, cheaper, faster because of software. What's, I think, always been true, as I've seen it in technology, is users will gravitate towards the better user experience, the thing that is better,

the thing is cheaper, the thing is faster. And I think to a certain extent, participating with the existing system allows for a better user experience in nearly all of the sort of typical use cases. And so then you're really then, if you're trying to go the fully independent sort of techno-inicus dream playbook,

you're really just trying to fulfill a need for a pretty small sector of the market, which can be done, and God bless you, good luck. But it's, I don't know. I think what we're going to see in the next 10 years is going to look a lot more like traditional finance just done, like I said, better, cheaper faster than the sort of utopian crypto future. Yeah, completely agree with both. And think, you know, what end users really want largely is convenience.

And they're quite happy in many cases to trust entities such as yourselves for these services. They don't want to trust blindly or completely, but they're happy to. like Coinbase, most Bitcoin new Bitcoin users buy on Coinbase and leave their coins on Coinbase. It's a centralized entity and some of them never leave that system. So I think with decentralization, a lot of people often get caught up at thinking that's the goal. With Bitcoin, decentralization wasn't the goal. The censorship resistant cash was the goal and decentralization was a requirement in order to achieve that goal. And there are many benefits to centralization, economies of scale.

There are some decentralized blockchain systems which are trying to decentralize Amazon Web Services. But having massive data centers co-located with tons of storage, it's very hard to compete with because of the price pressures on that. And likewise in financial services, I mean, when you've got central counterparties and CSDs playing central roles in entire markets, there may be downsized to actually even attempting to decentralize those. Yeah. And I, let me, I don't want you to think I'm totally, well, okay, the only part, I will point out, though, it is really special about this, that that release valve does exist, though. And, and I think history has enough examples. My, my father's side of the family all fled Armenia during the genocide with whatever they could stuff in their clothes, right? Like, there are enough examples from history where having this kind of store of value that isn't in ways, you know, censorship resistance. and governments, this is what I'm going to call it, is actually, I think, a really important part of this technology. It's not a thing that hopefully any of us will ever have to really need, need, but there are so many people in the world for whom that is, I think, a powerful and very appealing value to it,

that even as we basically reinvent the wheel, I'm thrilled personally as a technology that this sector now does exist, because I think that right is one that humans deserve to have. So before we continue, I just wanted to know we have a little under 10 minutes left. And so if you do want to ask a question, you can ask it through the app, and I will see all those. But I do want to ask my next question, which is you guys are kind of a more sober bunch than the typical developers that I interview because a lot of them are all about like decentralization. And it's going to, you know, all this is going to take down the financial services system. We're corporate. You know, yeah, the things are going to be too big to fail and all that.

But I've always wondered listening to them, you know, at the beginning of the internet, everyone always said like, oh, what's going to be peer-to-peer communication, everything, and now everybody just uses, you know, like Gmail and Facebook Messenger and Twitter and I message, whatever. So it's gone this route of centralized, even though the vision originally was decentralized. So I'm just so curious, here we are seeing also all this regulation and obviously in finance when you deal with money, there's a lot of compliance issues. So do you think that will give a further edge to more centralization in the space rather than decentralization? This really depends on what you want out of the product that you're looking for. So if you need to run with clothes on your back and the thumb drive of money, Bitcoin's a great option. If you just want to speculate on some sort of financial asset, do you really care that you have to do K.C or maybe it takes a day or two days to get set up with an account? If the product makes sense and the user experience is nice, I mean, we have, you know,

Robin Hood, where essentially retail consumers in the U.S. have basically given all their trade data to HFT firms, and they're making a killing. So it's all about the user experience. We're repackaging very simple financial instruments and making them friendly on an app, and people like that, and they don't really care what happens behind the scenes. So I don't think that the consumer really cares. They're lazy. If it looks really nice and it's decentralized, they'll use it. If it looks really nice and it's centralized, they'll use that too. But the underlying mechanics of the microstructure and what your offerings are relevant. Yeah, same way that, you know, no one really cares about what's behind the hood,

behind, you know, Google servers or any tech company or app that you use. Uber just works. If Uber's decentralized or it's a single company, it's as long as the price is the same and the experience is the same, the car arrives, most people don't care. So I think blockchain will just be a behind-the-scenes technology that has end-user benefits or financial institution benefits, but ultimately has to compete. on its own merits against other traditional technologies and new technologies. I'd only be underscoring what they're saying.

It's got to be a better user experience. Now, if someone comes along with the decentralized Uber that effectively lets me as a driver, I mean, I'm not long on that because it'll all be self-driving anyway, but that would let me accrue more ownership in the greater company. Like, okay, maybe this is interesting enough, but at the end of the day, the car still needs to show up as fast or fast. faster, right? The user experience, we like to think of it, is this user experience 10x better than what exists? So was Uber 10x better than hailing a cab, especially in San Francisco? Yes, there's

100,000 times better, or really anywhere. And if it doesn't answer that with a strong yes, it's probably not going to be enough. All right, yeah. Well, I think we'll find out, because I think the whole ICU craze was based on this idea of user ownership. And so who knows if that will own a zero now? Right. I will play devil advocates of myself. I think the one area where we're starting to see the pendulum swing back a little is around privacy controls and I

think Facebook is teetering on a point of sort of general like there's a there, did you see the launch of portal? No? God, I live in a bubble. Anyway, Facebook wants to put a screen in your home

and a camera and record everything and you can talk to your relatives, but the backlash within the sort of early adopter ecosystem was strong, and those would be the exact people I would expect to want to have this thing on, you know, Cyber Monday ordered for Christmas. So it leads me to think that there is some movement away towards some of the, like, sort of the Facebook overshare when it comes to privacy. But if you're actually trying to pitch me on, you want to build the next Facebook, simply having it be decentralized still isn't good enough. No matter how, like,

tense it all makes us feel that Zucks got all of our photos and knows exactly whose profile as we look at and how much time we spend on them and how Facebook used to have software to predict when couples would break up. I'm like that. This was years ago. I don't think it still exists. But we're all kind of okay with it, right? We're like, yeah, all right, whatever.

And that's just the reality, unfortunately. I know. Honestly, the more I learn about privacy, the more I'm shocked that people don't care and the more it makes me frightened for the world. But I know I'm in the minority because it's true. Most people don't care. So let's go back to tokenized securities in the short amount of time we have. it's funny because last night at dinner, Arthur was saying that you weren't super interested,

but Alexis, you just said you were. So I want to hear you guys talk about it. What's your take on tokenized securities? What do you think the potential is? And why are you excited or not excited about them? I'm not excited because I think one of the reasons why I kind of like the ICO as it was before the SAFed monstrosity was anyone with a website and a Bitcoin or Ether address could put up some gobbledy book of a white paper and say, if you believe in what I'm saying, give me some money, and I'll issue some tokens at a later date.

As people got afraid that they're going to be put in jail for basically giving, offering these, maybe securities, maybe utilities, what have you, they sort of migrated to a very legalese term sheet, which looked like some sort of reg whatever offer it. And that sort of got away from the whole ICO game. The STO or these securitized tokens, I don't see how retail investors who have been powering this whole bull market in the whole crypto space are going to get excited about an equity that just looks a little bit like a digitized token. And so I really don't see any sort of really USP on the securitized offerings, and they're just going to be very heavily regulated.

And can these startups afford to pay a ream of lawyers to get licensed in every single jurisdiction that they want to trade in? I just don't see it. Yeah, this is one where you're going to probably be surprised to hear me say that I would love to see the SEC do some really thoughtful regulation around it, because I do think well-done regulation could help enable a ton of activity that just doesn't exist right now. We know there's so much capital-seeking yield in the world, and I'm thinking of traditionally really sort of non-dividable or non-easily securitizable assets that could be, but the 100%, I mean, the cost that'll get it started will be tremendous. This would need to be, and we are seeing them more thanks to

a lot of very well-funded VC firms, very overcapitalized early-stage company that basically says, yes, look, we're going to spend a year building this technology, we're going to spend countless dollars on lawyers and be like a fat startup to try to make this happen. Long term, I'm still excited. On the shorter term, we talked a little bit of CryptoKitties. I am interested to see what happens around these non-fungible assets, and you're going to really have to bear with me here, but did any of you collect magic cards? None of you. Okay, one of you, great. Okay, so right, there is a baseball cards.

There we go, even better. Okay, everyone did. Awesome. So, right, there's a value there because there is a scarcity of that one Billy Ripkin special limited edition card where he has a profanity on his bat, right? It's a great card. That is a special thing because in the physical world we only printed a certain number of them and you can prove that this is the real thing. There is a version of this, there are versions of this and the infrastructure for it in the works right now for digital versions of this, these non-fungible assets. assets. And CryptoKitties is one kind of weird game version of it. I would love to see a digital

magic, the gathering version of it. And there's a, if you go on eBay right now for like a black lotus card, a market of people have determined that it is worth a lot of money. And I think that there are ways to look at things like what Fortnite has done to generate literally billions of dollars in revenue with digital goods that you cannot move out of that one ecosystem and actually allow it to be tradable broadly. But it's still, still very early days. Yeah, and I would just say to those points with security tokens, if it's sort of on a public chain sense, you know, very much agree with Arthur and that, you know, really the, what's

the incremental benefit of doing an ICO over a typical equity issuance? And really, right now, the only incremental benefit is skirting regulations. And as those regulations are clamped down on the people that are doing that, you start to just rebuild exactly the same system as today. So if the SEC were to come in with a more relaxed. regulations for the ICO market or security token market, they can equally apply that to existing equity crowdfunding today and allow the same access through the same system. So I'm not sure what I see, the incremental benefit of building that entirely permission system on top of a permissionless base, which is inefficient. Why not just use the existing system and improve that

you have today? Yeah, well, I think these are all the sorts of questions that we all have to use when we're engaging these various projects, whether in the public or private space. So thank you so much for all your thoughts. Thank you. Thank you.