Unchained - Naval Ravikant On How Crypto Is Squeezing VCs, Hindering Regulators And Bringing Users Choice

Episode Date: November 28, 2017

Love Unchained? Please take this extremely brief survey to help us obtain more sponsors: https://survey.libsyn.com/unchained The executive chairman of AngelList and partner at crypto hedge fund MetaStable explains how blockchains are changing the entrepreneurship model, his philosophy for crypto investing, and what kind of threat crypto could someday pose to governments. We also dive into why blockchains represent a new form of governance, his philosophy for investing in tokens and why he believes there will only be five or fewer winners among the money-like tokens. Show notes: http://www.forbes.com/sites/laurashin/2017/11/28/naval-ravikant-on-how-crypto-is-squeezing-vcs-hindering-regulators-and-bringing-users-choice/ AngelList: https://angel.co/ MetaStable: http://metastablecapital.com/ CoinList: https://coinlist.co/ https://www.forbes.com/sites/laurashin/2017/05/18/want-to-hold-an-ico-coinlist-makes-it-easy-and-legal/ Zcash: https://z.cash/ BlockStack: https://blockstack.org/ https://www.forbes.com/sites/laurashin/2017/09/05/blockstack-on-how-to-take-control-from-google-facebook-and-amazon/ Bitwise Hold 10: https://www.bitwiseinvestments.com/ https://www.forbes.com/sites/laurashin/2017/10/02/new-crypto-index-fund-to-launch-with-backing-from-naval-ravikant/     Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained, the podcast where we hear from innovators, pioneers, and thought leaders in the world of blockchain and cryptocurrency. I'm your host, Laura Shin, a senior editor at Forbes covering all things crypto. If you love Unchained, please give the show a positive rating or review on iTunes. A huge percentage of people who listened to the show found it simply by searching in their podcast app, and good ratings help bring into this top of search results. Also, spread the word on Facebook, Twitter, or on your secret Slack and telegram channels. And don't forget to find it. Follow me on Twitter at Laura Shin. This week's episode is brought to you by OnRamp. Your branding and website are the first things your users will see. And in the current Wild West of ICOs and blockchain startups, you need to stand up from the pack. UnRamp is a full service creative and design agency that will help amplify your brand with a perfect website, logo, collateral, or custom design project. Get big results in no time by visiting ThinkOnRamp.com. Today's guest is Naval Ravacont, co-founder and chairman of AngelList and partner

at what might be the longest running crypto hedge fund, Metastable. Welcome, Naval. Thank you. Thanks for having me. I guess you're all out of pioneers and influencers, so here I am. No, no, no, no. I literally was telling my left driver, I was like, this is the most important interview I'm going to do. Today.

No, no, no, no, for this podcast, please. Don't be self-deprecating. Everybody knows that you, I mean, everybody's following you on Twitter. Everybody's retweeting your tweets. So let's chat about what you're up. to last time you emailed me it was to say you were no longer CEO of Angelus and you haven't been for a while but in July I interviewed you and I think you said you were um but the title I mean I'm not big big on titles I've been I started Angelus seven years ago I've been running it

in some form or another um for those seven years today I'm executive chairman I have a couple of good CEOs with different units because Angelis has a bunch of different business units uh right running it. So I'm still day-to-day here at the office. I still kind of do my thing. I just don't have that many direct reports anymore, which is a relief to me after seven years. That's all that is. So what percentage of your time do you spend here versus with Metastable? Physically, I'm at Angelus the whole time. Metastable doesn't even have an office. But I mean just your time. I think mental bandwidth. It varies. Some weeks as 50-50, some weeks as 70-30 Angelist. You know, on Metastable, honestly, my partner, Lucas Ryan,

and Josh Sine to do a lot of the heavy lifting. I'm just the face. So I do a lot of the talking. Okay. Okay. So you're not. It's not like you've made some wholesale shift over to crypto. I would say my mind sure is heavily crypto.

So even on Angelus, I spent most of this year building Coin List, which is our legal, regulated, well-lit marketplace for ICOs that we started with protocol labs. And we spun that out as a separate entity. But I was basically playing the founder role on that. So I helped assemble the company, you know, raise, you know, raise it. some money, just kind of create the whole infrastructure for it, get some of the early customers, and then recruited a team for it, a really capable team, and then handed it off.

Okay, and I know that Coinlist also recently launched a sister company, Republic Crypto? No, Republic's been around for a while. So Republic is an Angelist crowdfunding spin out. So basically, we had a bunch of Angeles alumni who left a few years ago, and they started a crowdfunding company around Title III, the Jobs Act. And that was Republic. And recently, as you've seen, a lot of ICOs, they want to be legal.

They want to be compliant with securities laws. And so they are doing that using coin lists, but that only allows them to sell to accredited investors. They also want to be able to bring along the rest of the community, because community building is critical with coins and tokens. And so Republic is a crowdfunding site that is legal. And so Republic crypto is this crypto arm that helps these ICOs also reach sort of more ordinary users, but with regulations and controls around how much they can invest in the levels

of disclosure and sophistication that's required. So yeah, so the Angelus family has gotten pretty big now. We have Coinlist. We have Republic. We have product hunt. We have Angelus talent. And of course, we have Angelous fundraising. So at this point, it looks more like an alphabet, you know, like a group, like a group of companies rather than a single company. And so I'm executive chairman of that group. Okay. And for Republic, um, would the ICOs on that platform be limited to like one million or some small amount? I think the base case, the easiest case is one million, which is what's in there by law, but Republic could also do things like reg A plus offerings and other offerings that can open

it up to more investors. It's just that the disclosure, the diligence, the preparation, all that work goes up. So it just depends on how much you're trying to raise, what the specific circumstances of your company are. Unfortunately, when it comes to security law, nothing is simple. I can't summarize it on a podcast, but if any listener is interested, they should reach out to the Republic team or to the coinless team. Okay. So I want to establish everything that you're doing across crypto.

I kind of did a little bit of digging. You're on the board of the Zcash Foundation. You back to crypto index fund, the Hold 10, which I wrote about. I will put that in show notes. Bitwise, whole 10, yeah. Bitwise, yeah, is the name of the company. Hold 10 is the name of their fund. I've been pushing it called the Hodel 10.

I know, you too. I said that when I interviewed them. I was like, why don't you do that? But I guess they wanted to be conservative. I think they want to go very mainstream, right? The whole point of an index fund is making a low-cost vehicle available to lots of people. So to the average Joe who may not know what Hodel is, I think it's a whole misspelling. That is true, which it is.

Which is. Which is why we love it. So obviously you're also doing CoinList, Republic Crypto. And you've also invested in FileCoyne, Blockstaff, Ryan and I'm actually in the podcast a few episodes back for listeners who want to learn about them. You invest in base coin, which is attempting to do a stable coin. Yeah. Did you invest in numerai?

Tiny bit in numerai way back when, Ledger X, Tiny bit way back when. Chia coin, Cracken, Corbett. There's about three more cooking right now that haven't been announced. But I actually don't do a whole lot in the private side of crypto. Most of my crypto investing, certainly all the public coins, you know, the Bitcoins, the Ethereums, and those things all go through Metastable. And even the private investments, a lot of them go through Metastable. I only do it personally on top of Metastable if I want to put in more, basically.

So is there any particular philosophy or thesis that you're following as you make these choices about what to get involved in? Yeah, at least at the moment, I definitely have a distinct point of view, which is that for the most part, I'm looking at the money and money-like tokens, the things that can become a store of value, unit of account, medium of exchange, or power financial contracts. And I make that choice because I think those are the most near-term applications that are close to being fulfilled. By close, I mean five to ten years.

I don't mean two years. And those are also the applications that are the largest markets, frankly. If you get to redefine what money is, that is a much larger generalational shift of value than building an application. The exceptions I make, I do make an exception to certain apps that I think can be really large. Like Filecoin is an example where file storage is a big business. By the way, none of this is investment advice. You should not invest in any of this.

My advice people would be if they want to invest in this asset class, it's crazy, risky, just buy a tiny amount in an index fund and be done with it. That's the best thing you can do. Obviously, this asset class makes venture look like safe bonds and value equities. So anyway, so going back to that, I invest in the money and money like tokens to think be large or things that I think can be platforms. That's why I'm in Blockstack. That's why I'm in file coin because I think they can be large platforms. And I'm also investor in Mesh, which I just like what they're doing.

And sorry, sorry, Orchid. They used to be called something else. But Orchid, which is doing sort of a tor slash incentivized VPN for the world. just because I think that real uncensorable VPNs or something the world needs, especially in a lot of countries, it's something that crypto is uniquely well suited for because they need to be decentralized by nature and even resisted to attacks by nation states. So I think that's a good thing for humanity. It just needs to exist. Yeah, well, I was reading your blog, and you basically dreamed that up in 2014.

And I wondered if Steve Waterhouse is the founder of Orkid, if he stole that from you, or if you, gave me idea or what happened there? Well, in 2014, 2013, I got bitten by the Bitcoin bug and the virus took hold and I couldn't think of anything other than this new model for how to create and deploy protocols and how to kind of administer and control the large networks. So on my blog, which is startup boy.com, I wrote a few articles where I had some ideas about how else this could be used. And I missed some use cases and I picked out some good use cases.

They're sort of the obvious ones. And there were some that I put in there that still haven't come true. Like we need a very fast-clearing, low-transaction fee coin that can be used for settlements between fast-moving anonymous real-world objects like cars negotiating rights away, for example. So some of these don't even exist yet. But I tried to get fanciful, and it's the nature of features. You're going to get a few right, and then you take credit for everything that comes after it, and you get a few completely wrong, and you sweep those under the rug.

But it's all out there in the open. I put it down in writing, so it keeps me intellectually honest. Yeah, and honestly, I mean, you know, I get pitched so many things, but when I got the Orchid pitch, I was like, oh, this, this is interesting. Unfortunately, I didn't get to write about it, but it's the nature of covering this space where there's 5 million things going on all the time. So I'm kind of curious because you have this sort of long history in startups and in Silicon Valley and things are shifting right now. So I'm going to do a brief summer of your career. Feel free to correct me if I'm wrong. in any of this, but earlier you launched opinions, and according to the San Jose Mercury News,

your VCs and one of the co-founders convinced you and some of the other co-founders that the company was worthless. They engineered a merger and rebrand that went public, was later required by eBay for $600 million. And you and those co-founders who felt that you had been sort of dupes, sued, and later settled. And then that experience led you to become an expert in term machine negotiation, which then led you to become a matchmaker, basically, for starting. and investors, which led to AngelList. And obviously, you know, AngelList has been hugely successful. But here we see, but maybe you tell me, you know, if you agree with this, that the

startup model is getting upended. And here it is now you're, you're, you've joined this firm, this crypto hedge fund that is not even investing in startups at all, but mostly in decentralized networks. So I'm sort of interested to hear how you think this model of like VC back startups that eventually go public, has evolved over time, how you would describe the current phase of where we're at and that? Yeah, it's changed a lot for sure. With Angelus, we tried to create a network to bring a lot of the startup deals online, get them access to more investors, get more investors around the world, access to startups. And that's worked relatively well. Today, I'd say about a quarter of the

deals in the English-speaking world, mostly California, New York, and Europe and Australia are available on Angelist who a savvy investor. Also about half the startup companies in English-speaking world are recruiting on Angelist, and there's about a million candidates available on there. So we've definitely had a big impact. But the real financing shift for startups that's happened is ICEOs. And there we've created a new native token model native to the internet, native to startups, that helps them get funded online.

It's still in very early phases. So it's frothy. It's full of fraud. It's full of junk. So it's not something that every startup can or should. use. It's really designed for a small class of internet protocols that I think are being developed today that could not have been developed 20 years ago. The first generation of internet protocols, the HCPs, TCPIPs of the world, these are free open systems where nobody got paid for them,

and they basically treat every resource in the protocol as too cheap to meter. But I think we're now entering in age where we have a next generation of internet protocols that are starting to meter scarce objects, digital scarcity. And that could be money. Money is a digital object, but it's scarce, obviously. You don't want to be able to just create it as you go. Bandwidth is another one. File storage, maybe another one.

Although that's debatable, may turn out that energy is another one, et cetera. So whenever you have digital scarcity, blockchains are creating a new generation of internet protocols. They come bundled with these tokens, which is how you keep track of who owes, who, what, in this scarce environment. the tokens themselves and create a financing mechanism because they're bearer assets where owning the token is all you need, you don't need to register with the company or file with the SEC.

They can be more freely traded all around the world. They get treated like cash or money like instruments. And so startups have sort of created their own new financing mechanism that's native to the internet and that can upend parts of VC. And where it's happening is at the edges. So if you look today, that, you know, five, sorry, let's go back like 10, 15 years ago. If you wanted to raise VC financing, you went to Sand Hill Road, or you went to a few firms in New York or Boston, your classic series A, series B, series B, series C, series D.

And maybe there was a little bit of angel investing right at the beginning. And then you rode this whole wave down until you got to go IPO 10 years later. Well, now the problem is the IPO markets have closed post-Enron. They're much tighter, much harder to go public. So people are star for liquidity. And on the other side, seed investors, angel investors, angel lists, syndicates, microfunds, all of this has come up. So you have a lot of seed money floating around, a lot more options there. You also have things like Ycombinator and all the incubators.

Now you have safs for tokens, but you also have safes for easy legal documents. So the early stage has gotten very rich, very vibrant, very innovative. The very late stage has just been completely closed, and the VC model in the middle hasn't changed. So what's happening now is the early stage is creeping up as the seed funds are raising more and more money and the seed rounds are getting larger. I was involved with a company that just closed a $4 million seed round on a safe note, which is an absurd concept. You know, three years ago, you couldn't have done that, let alone 10 years ago. And then on the other side, the ICOs are letting out open the liquidity valve and taking the place of some of what the IPOs used to do. And VCs are getting squeezed in the middle.

So now, if you're a venture capitalist, you either have to participate in a seed round, for one of these companies or the A, or you miss it because the next round is the ICEO. There's no Series B or Series C. Now, obviously, I'm only talking for a very small class of companies. These are, again, the protocol token companies. But people are definitely trying to expand the definition of what a protocol token company is and who should be using tokens. So I think the VC model really is in danger of getting squeezed down to a very, very small space.

Which is sort of exciting, honestly, in a certain way, although I'm sure. It's exciting and scary. You know, the VCs have developed norms over the decades that prevent them from getting squeezed or getting defrauded. Although one could argue that there was a period of time when that power was used against entrepreneurs because they got too good at it. So now the pendulum is swinging in the other direction where an entrepreneur is far more likely to defrauded VC than the other way around. So I think in the new model, ICO investors, seed investors, they need to learn some of the same norms and practices. defenses that sort of help balance the market out. You know, in biology terms, there is a predator-pray relationship, right?

We need these two characteristics, although there's an arm, basically an evolutionary arms race, right? Every time the entrepreneurs get a new instrument, the VCs need to, like, evolve to make sure they don't get taken advantage of and vice versa. And historically, the entrepreneurs were always at a huge disadvantage because the VCs do thousands of deals and they stick around for a long time. the entrepreneur shows up, signs are for first term sheet, and they don't know what they're doing. But now the internet is leveling that great playing field. With the internet, people exchange information, incubators level the playing field, YC level the playing field a lot, Angelus levels of playing field. Yeah, but one thing that I'm wondering is, in a way it is disruptive,

and yet at the same time, I feel like a lot of the people that are able to invest in these ICOs are people like VCs, these people who have money, particularly, you know, something like coinless that does restricted to accredited investors. So is it really that disruptive? Oh, even with coinless restriction, and I would guess 90% plus of the capital is coming from non-BCs. Well, okay. Yeah, but I mean, let's just talk about disruption in terms of like who has money and who's able to get on these deals. Well, there's just, okay, so let's let's talk about in two forms. One is new players. I would argue 90% plus the money is coming from new players. Second is on the terms, the terms is coming on is very company-friendly.

So now the company can put hundreds of investors into a round, whereas before they would have had one lead VC and a few angels. And the third is actually when the companies, blockchains go live and the tokens turn into a real use case or being used for a real network, then retail investors can go in on these secondary exchanges, like a Coinbase or a Gemini or a Cracken, and they can buy stuff there too.

So it is opening up. I'm not saying it's perfect. It's not going to happen overnight. Also, as we can see, like, When we've opened up the market from just VCs to ICOs, the valuations and the pricing has little increased 10x. It's gone insane. So it's not clear you want to increase it that much, that fast while the norms aren't in place because you have companies that probably couldn't raise $5 million through the venture circuit that are suddenly raising $50 million in ICOs. And that's not a good thing.

So the market needs to settle out. There needs to be a little bit of a crash. It needs to be a little bit of a comeuppance for some of these investments. and then I think it'll become more rational. It's the nature of technology that there's always an exuberance. There's always a bubble. There's always a crash. And we just have to go through that cycle here too.

And can you imagine right now any mechanisms that would sort of both help keep the democratizing aspect as well as sort of rein in some of these wild valuations for singing? I think there just needs to be a market correction for a lot of the junk. So, you know, a lot of the poorly thought through projects are going to fail the ship product or they're going to ship product and it's not going to amount to anything. Or people are going to figure out that, oh, the decentralized version of this is an even worse idea than the centralized version was. So the centralized version didn't work. Why is it decentralized interesting?

So people will figure that out. The investors will sell those tokens. The market will crash. There will be the inevitable cry for the government to step in and do something. And I think that's the critical time period. If the government doesn't step in and do something, I think it's actually a little better because then the market will correct and will learn. If the government does step in and do something, you know, something, quote and quote, then you get another set of rules and you're applying 100 years from now that no longer apply.

Meanwhile, most of the capital formation flees overseas. So I think it depends. There's probably a happy medium, but the medium isn't in the middle. It's probably more in the favor of just letting the market play out and correct itself out. To some extent, when you look at early investors in Bitcoin and Ethereum, they've collectively made over $100 billion. And to them, that's almost, you know, returns on investment. So it's money that they came in and they sort of created out of thin air.

So to them spending... Yeah, but what about all the people that bought, I mean, name any of the other hundreds of all coins. You know what I mean? Like, it's easy to say it for those. I sincerely hope that anyone who's buying, especially the all coins, is doing it with an extremely small percentage than that word, so they won't lose sleep at night if it goes away. Anyone who's putting in a meaningful amount could be in for a really rude surprise. At the end of the day, in an open market, you can't protect everybody. The price of protecting is basically killing the market and turning it back into a crony capitalist system or turning into a highly restricted system.

So you can't have it both ways. You can't have it open and democratize while at the same time having, you know, nannying and babysitting. So you got to pick one or the other. I do feel like there must be some way to combine the two, you know, to do both. I think that's the middle of the SEC tries to walk. But at the end, but this one is tougher because these are global markets. So even if you stop a U.S. citizen, you say, hey, you can't trade this token. They can just go anonymously and do it somewhere overseas.

It's a purely digital assets. And I think one important thing to realize here is that we've always had strong financial regulations, but we have no speech regulations. Speech is free because we're a free society and we're not going to do away with free speech because it's the fundamental basis for a free society. But now money is just code and code is just speech. So money and speech are actually the same thing. So you're trying to keep, speech is free, and you're trying to restrict the flow of money,

and the two of those just can't go together. And what do you mean by that when you say, like, money is a form of speech? I don't really know what that means. Well, so in this case, what Bitcoin did was it turned code into money, right? So Bitcoin is pure code. There's no paper. There's no gun. There's no federal government.

It's just pure code. So to stop Bitcoin, you've got to stop code. And code is actually just speech. It's just a bunch of numbers and letters that I write down that a computer interprets. So you have to stop me from writing those numbers or letters down in a certain sequence and conveying them to other people to stop them from loading it on a computer somewhere in the world to stop somebody else from then turning that into money. So you can't control the way money flows unless you can stop the developers from writing the code

and from talking to each other and from thinking. And the regime that could do that would probably be one of the most evil regimes on the planet, not a society that I think any of us we're going to live in. So essentially, by turning speech into code or just writing into code that computers can interpret and then turning code into money

that computers can exchange, you can't stop money from moving around anymore. This is what China's figuring out. This is why they had to shut down all the exchanges because they had huge capital flight issues. Because they're trying to control the ingress and egress of money in China. China, but you can't do that unless your firewall policy, you can filter out all the traffic

that looks like money. And it's really hard to recognize what it is because this is all encrypted to begin with. So there's all these zeros and ones flowing by on the wire and you're trying to figure out which one is someone talking on WeChat and which one is money. Really hard problem. So, yeah, that's one thing. I mean, obviously, I mean, there are so many theories about like why China did the correct island that did. But obviously capital flight is one. other people are saying that they want to do their own cryptocurrency. But I think one thing that I've looked into and that confuses me still is, I just wonder why they haven't shut down the Bitcoin mining.

Do you have a theory about that? Well, they have or have not? Have not. Well, Bitcoin mining, the miners are a very small set of people who are very well known to the government. So if they're concerned about capital flight, they can literally just watch those few actors. Whereas if there's general trading going on in the exchanges, and it's very frothy, then you have to basically monitor the exchanges.

Of course, I think it's extremely heavy-handed. They shut down the exchanges. I think it'll backfire because what's going to happen is sites like local bitcoins and crypto-to-crypto exchanges are going to capture the excess, and it's going to go offline where they won't be able to track it. My sense is it was, and this just a pure guess, I have noticed that our information,

but my sense is it was done for capital flight reasons, and with the miners, you can just track the capital flight. so it's much easier to control. I think in the medium term, they do know they have to reenable it. They have to reenable it because this is very much the future of Internet protocols, and they can't miss out on the next generation of Internet protocols. This is also the beginning of digital commodities, and when it came to physical commodities,

they went out there and tried to accumulate as many of them as possible, so this should be no different. So I think it's more likely that they would nationalize the miners than they shut down the miners. Interesting. Okay, we're getting a little bit for the way, from where I wanted to go, but I actually just wanted to go back to this tension about, like, protecting investors, but also, you know, letting innovation go. I, you know, know, that you were involved in getting the Jobs Act passed. Those are the crowdfunding roles that enabled everyday people

to invest in a service. Yeah, actually, it's less well-known Jobs Act really enabled ICOs in one critical way. Before the Jobs Act, it was completely illegal to solicit the public, publicly for investment, even to accredited. You literally could only go through words of mouth and closed networks like Angelist or YC. You could not, for example, you know, announce in a press release that you're raising money, even from accredited.

And the Jobs Act, Title II of the Jobs Act, allowed something called general solicitation. And that seemed like it was going to be a big deal, but it wasn't. So in 2013, when that was announced, we had Angelus enabled general solicitation, a lot of fanfare around it. Nobody used it.

So we thought it was dead on arrival until the ICOs showed up and the ICOs rely on it. With Amex Platinum, almost every purchase made with your card can be covered with points, including new tastes, new fits, and virtually everything in between. That's the powerful backing of Amex.

Conditions apply. When McDonald's partnered with Frank's Redhot, they said they could put that shit on everything. So that's exactly what McDonald's did. They put it on your McChrispy. They put it in your hot honey macnuggets, dip. They even put it in the creamy garlic sauce on your McMuffin. The McDonald's Frank's Red Hot menu. They put that shit on everything.

Breakfast available until 11 a.m. at participating Canadian restaurants for a limited time. Franks Red Hot is a registered trademark of the French's food company LLC. Okay, okay. And then the Title III of the Jobs Act enables crowdfunding, which is what I think you're referring to, where small dollar investors can invest in early stage companies. Well, so one thing that I found a little bit curious when I was just, just thinking my history was, you know, you worked on this funding mechanism that would open up investment to the crowd. But then with the ICOs, one of the first things you did was Coinlist, which is, you know, for wealthy investors. And I just wondered.

Well, Coinlist plus Republic together can hit the whole market. So you have, because of the way the regulations are written, unfortunately, the current law assumes that if you have a million dollar net worth, you're a genius. And if you have lower than a million dollars, you're a fool. So you fall into two completely different regulatory frameworks. So we have to have two different entities, but between those two entities, you can do a full ICO to accrediteds and non-accreditants. That's the law. I don't make it up. I don't think it's necessarily rational and reasonable.

If it were up to me, it would be more of a sophistication test, and it would be a smooth gradient rather than a binary cutoff between one million above and below. But that's just the way the law is written. Well, I wondered actually if you, because you were involved in lobbying for that and kind of helping to formulate that regulation. so I wondered if you had any ideas about how they might do things better? Yeah, the current regulatory infrastructure is a, just a giant mess of individual regulations that have been piled on since the 1930s act, so over the last 80-something years. And it's the infrastructure that Wall Street runs on,

which is the most powerful lobby in the world that doesn't want anything to change. So just getting the Jobs Act through was a miracle, because it really did seem to some elements, on Wall Street, like it was a threat. It was a bypass around their chokehold on capital formation and capital distribution. So I wouldn't expect a lot of regulatory relief. I think what we can hope for is enforcement relief, maybe a little bit of enlightened non-regulation of crypto, just like there was non-regulation of the Internet in the early days. So a little hands off. And then most importantly, global competition. Because there are other countries in the world

that don't own the reserve currency of the world, that don't have strong financial infrastructure that would like to be able to play in the next generation of financial infrastructure. So I think that will help people keep each other honest. Okay. So you're not thinking about getting in the lobbying game again? God, no. It's exhausting. I mean, I do a little bit behind the scenes here and there.

Like there was this whole stock options thing in the Senate recently. So we wait in on that. I've definitely been talking to and help educating some people on Capitol Hill about crypto and, you know, what the kind of enlightened regulation there is. and we've responded to information requests from the SEC they're actually very up to speed. So they're quite knowledgeable about it, but they come in and they ask us for data.

So I participate in all of that, but I'm not going to go out there and lobby Congress again. Okay. All right. Well, we're going to talk about what a blockchain feature looks like and how Nubal assesses tokens, but first I'd like to take a quick break

to tell you about our fabulous sponsor on ramp. If you're starting up a new project or needs and design or branding help on an existing one, OnRamp has you covered. OnRamp is a full-service creative agency that has helped numerous companies, including many in the crypto space, maximize their brand awareness, gain traction, and accelerate growth. OnRamp has a passion for assisting brands and boosting business results and can help with everything from website and logo design to social and content strategy. Focus on your core technology and leave the rest to OnRamp. To learn more and see how they've helped passionate entrepreneurs achieve their dreams, go to thinkonramp.com. I'm speaking with Naval Robicon, partner at Metastable and chairman.

of Angelist. So let's talk about how you evaluate tokens. Do you have any kind of step-by-step process when you get a pitch or hear about a token? Like, what do you look for first? What do you look for next? What factors make you realize it's not worth researching further? Yeah. First, I send it to my partner, Lucas, which is a little glib, but it's a way of telling

you that even though I think I'm fairly sophisticated in the space, it's very, very difficult to evaluate anything. Lucas and Josh, actually, in many cases, when the code is available, well, when the technology is available, they'll audit the source code, they'll review the buyers of their developers, they'll track down their histories, and really try and do a level of technical due diligence that I think is critical in this space, even to an extent that it's not in venture. In venture, someone comes to you and says, you know, I'm a professor and so and so, and I've written this code on VR, headgear, it's enough to use the application or use the prototype. Whereas here, I think

you actually have to go and review the source code. It's just another level. And what are you looking for it? Like, what would be red flags in the code? well the number of people in the world who are qualified to develop an internet protocol is probably numbers in the hundreds it's not in the hundreds of thousands so you have to basically make sure they know what they're doing in terms of distributed systems engineering encryption protocol design cryptography all that stuff so you're looking for technical competence you're looking for good design you're looking for having thought through all the various holes you're looking for experience and then there are there are outright frauds in the space where the white papers look really good but they're backdoor in the coat. So Lucas used to make a living beforehand by claiming bug bounties by finding holes in coins or bugs and coins. So he also looks at those kinds of things. So for example, you know, we looked at the parody wallet stuff a while back and Lucas concluded that it was just too dicey. The code was just too complicated and they were trying to do too much. So he didn't identify a specific hole, but he said this is the kind of thing that has holes. So we can't trust

this. So we have to be very conservative on the technology side. at a market level we look to see is there a big is there a big enough market for this is it trying to be a money like token is it really bringing novel technology how is it priced and right now I'm probably getting hit

with like 10 ICO deals a day and nine out of the 10 are actually pretty easy to dismiss because very often they're just companies that don't need a token we're not interested in blockchains or cryptography until suddenly the ICO boom started or their ideas that often didn't work as a centralized company, so why would they work as a decentralized?

And a lot of them don't need a token in the middle, or they don't need their particular token in the middle. They would be better off, especially because all the winning cases here are open source software, somebody is just going to fork them, remove their proprietary token, and insert a Bitcoin or an Ethereum, or maybe a version of proprietary token that gives 0.1% to the developers instead of 10 or 100% to the developers. So I think a lot of it is just outright greed. and so those ones are easier to dismiss. Then I think there's a category that are interesting, but probably too early,

where people are trying to build next generation marketplaces or broad applications, almost platform-like applications, but I think we're still at the infrastructure layer. So I tend to dismiss most of those. I think they might be fine investments for other people, but I have a strong viewpoint that we're still in the infrastructure phase here. So I tend to remove a bunch of those. So that's sort of like choosing not to invest in Webvan, but later investing in Instacart, something like that. Something like that.

Hopefully. That would be good if that works out. There's also a number of these that are what I consider asset tokens where they're not really a protocol where you have some digital thing you're moving around underneath. It's actually rather mapping some asset in the real world, like a piece of real estate or a car or a share in a real world company. I also think those are less interesting because it's not, it's not. fully digital, it's not fully protocol native. It requires external enforcement by law, by legal authorities. And as such, it's basically a security by another name. So those ones also less interested in, and tend to dismiss. And then when you get into what I consider it to be

the protocol tokens, and especially the goal standard of the money-like protocol tokens, the bar there is really high because there's only going to be one to five winners in that entire space. So the technology has to be. Why do you think that? Money has a very powerful network effect to it. One way to look at it is, you know, if we didn't have geographic national boundaries, we probably only have the U.S. dollar or the equivalent for the entire world. We wouldn't have thousands of currencies. The currencies only exist because of national borders.

Money is like language. It's something that's intrinsic to the human species. We want it to be as open as possible. The world tends towards one. Now, within money itself, there are different use cases. There's store of value like gold. there's unit of account what we use dollars for today, and there's a medium of exchange where we actually currently use digital packets

that represent U.S. dollars or digital signatures represent U.S. dollars. And the next money could be all three of those things in one. It could be a different one for each of those three things, or it could be that we have a basket of things for each one. And it's not clear yet. Nobody really knows whether it's going to be one or three or 20 or 100, but it's more likely going to be in the one to five, one to ten range. So now you're basically saying, okay, there's hundreds of still business plans to do these.

There's only going to be one, maybe two winners. So you really, really have to have a very, very high tactical bar for what you think is going to do well. And today, the default use case is the default case is probably going to be some combination of the top 20 cryptocurrencies. So to get in there and unseat one of those, you're going to have to come up with a pretty fundamental innovation. And is that why you've invested in base coin and zcash? Like it sounds like maybe you think that a stable coin will definitely work in a privacy coin. Yeah, a stable coin is one of those coins that sort of needs to exist. I don't necessarily recommend base coin.

I think there's going to be dozens of players in the space of which none might win. But if one does win, then a stable coin is great because it allows you to actually do real world transactions without the price moving on you. One of the problems today as a user or as a merchant is that, Bitcoin and other coins are just too volatile, when something can go up or down 10% in a day, you can't use that to run your business. You have to get it and out of that as quickly as possible, which encourages transaction fees and has storage costs and all those kinds of things. A stable coin, in theory, could hold its peg like the U.S. dollar stays within the very tight range over a long enough period of time that people can actually post prices in that coin

and they can actually transact in that coin. Well, one interesting thing that I thought when I was reading the base coin white paper was that, because I, you know, I understood this part about how they were sort of incentivizing. I forget the name of the group, because there were like three people. There were the bond people and then there was actual point. And then there was the third where you're incentivized to sell their business or anyway. The bondholders. Yeah, it's a completely steep.

Yeah, I forgot the name in that group. But the point is just that I was kind of like, well, their upside is only going to be limited to a certain percentage. So I was like, why would anybody speculate on this when they could speculate on like Bitcoin and Ether? And then I just wondered, like, is this going to be that popular? And anyway, I just, because I feel like speculation is what's fueling everything right now. I was like, if someone is being really rational, they're not going to be like, oh, I'm going to get it all in on this because they're going to realize that their profits are going to be pretty limited.

Right, but their downside is limited to. And the profits may be relatively not guaranteed, but maybe a lot more predictable. So it's like if you look in the bond market versus the stock market, stocks on average, make a lot more money. bonds, but bonds are, quote, safer, and you're guaranteed your coupon over some period of time with a very low risk of complete default, whereas equity, the chance of a total wipeout is actually pretty high. So equity ends up being more risk capital, bond that's being more safe capital, and most of the money in the world goes into bonds, credit markets, not into equity markets. So you could argue the same kind of thing here, but a lot of it depends on the exact parameters.

And you're right that in the crypto markets, it's driven mostly by extreme thrill-seeking, money-making speculation. So it wouldn't be the same kind of investor that necessarily invest in both coins. Yeah, yeah. Well, we'll see how well that one does. So one other thing is that I've seen in other interviews you've talked about, like with startups,

about how timing is extremely important and a lot of that's due to luck. So I don't know if maybe you referenced this a little bit earlier when we spoke, but do you have any particular types of tokens now that you think of a bigger chance of being lucky? You know, like, are there any that you feel are kind of in that sweet spot?

of really meeting or the space really meeting them and then also the technology being pretty ready for them? Yeah, I think we're still in the infrastructure phase. Even the two biggest coins, Bitcoin and Ethereum, have not yet figured out how to scale properly. They have not yet figured how to decentralize properly. Ethereum is still controlled by a very small number of developers, like very small. You can count them on one hand. And Bitcoin is controlled by a relatively small number of developers, you know, probably like three dozen. And a small number of miners who are concentrated heavily in China and a small number of exchanges

that get to set policy on what do you call the coin. So we are not actually in the decentralized future yet and these platforms can't actually handle applications and scale them yet. That said, we are making rapid progress. So given that, I think that

investing in apps is just early. It's okay for entrepreneurs to start building them and there are probably a few that may break out early. Like, for example, if you look at the first generation in the web, almost everything from the 1998-1999.com boom is gone. We don't use it today.

But there are notable exceptions like Amazon and Google, right, the Big Five. So two of the Big Five companies were born during that time period. And Apple was sort of reborn during that time period as an infrastructure provider to a lot of those companies. So I think you have to basically realize that the entrepreneurs are playing right now playing an extremely high-risk game. They may form the Big Five, but most of them are going to end up like the dot-com company. companies, the Pets.com, and the webbends. So for me, at least as an investor, I look much more at the infrastructure

and deployment phase, sorry, infrastructure phase rather than the app development and the deployment phase, which will, I think, come later. And then earlier, when you were talking about how Bitcoin and Ethereum haven't really kind of figured out a good governance model for a decentralized network, do you have any particular idea in mind of how

you think governance should work for these decentralized networks? Well, they're not really fully decentralized yet, but they're already more decentralized than anything that has come before them. And the thing that really makes it possible is that even though Ethereum is only controlled by a small handful of developers, those developers can't just do whatever they want. Because it's open source code, it can fork very easily.

If they do something unpopular, the users can literally pick up the code and the network and leave. So that creates a level of honesty that just doesn't exist. Imagine if you and I had the ability to press a button and teleport our entire lives from the United States to any other country that we wanted. And that was true of any citizen of any country in the world. Countries would still have control over their geographic boundaries and their borders and the laws of them the borders, but they would just behave extremely differently. It's also the difference being when you're casually dating somebody, which is when you're married to somebody.

When you're casually dating them, they have to be in their best behavior. Otherwise, either party can walk out. But when you're married, then people kind of tend to revert to sort of not their worst selves, but their normal selves. and because they know they have lock-in. So at the end of the day, because cryptocurrencies can fork, because the users can leave, because the users can sell your currency and buy another one, it just forces you to behave at a level that other, that's not true with other code and other infrastructure.

For example, there was a woman recently who was banned by Uber and Lyft because she went on some screed against them online. And I'm sure I think what she did was probably reprehensible. But the idea of being banned by Uber and Lyft, that's pretty insane because it's not like you really have a third option. What are you going to do in San Francisco? Sit on the phone for 20 minutes and wait for a taxi. So those companies have a lot of control. In CryptoLand, nobody has that much control. They try to do anything that the community doesn't accept, the community's gone. And I think that right there, that right to exit, creates better governance than almost any other

system that we've ever had. Now, on top of that, you can layer on additional better governance. Like Bitcoin has this concept of there's the users, there's a user, there's a, a minor, there's a developers, right? It's a soft analogy that would be. There's a judicial system, there's the executive system, there's legislative system in the United States. So you do get some division of power, but it can be better. Bitcoin's had a really hard time agreeing on anything new moving forward, which many people would argue a source of strength because it's trying to be an immutable store of value. And eventually, I actually think it's better for Bitcoin to be extremely conservative. Bitcoin is where you put your money in.

and hope that nobody can touch it, nobody. That includes the government, that includes Chinese miners, that includes U.S. developers. So if Bitcoin is going to make a mistake, I would rather that an error on the side of not changing quickly enough rather than changing too fast. Because as a user, now that may not be what's best for Bitcoin necessarily, but as a user, I have other options. I also have Ethereum, which changes a lot faster, moves fast and breaks things. But on the other hand, because of that mentality, isn't really interested in protecting an investment. It's interested in creating an ecosystem of services on top. And so that's probably where I'm more likely to want to run my business.

And then something like Zcash and Monero are much more focused on privacy. And if I care about privacy, they're going to defend, protect, and encode it at a level that the other big two are not. So I think in general, it's good to have a diversity of coins with different governance models, different philosophies, different communities. And as a user, I can just go in and out of whichever one I need when I need it. within a given community, they get extremely acrimonious and there's a lot of fighting, mostly by the hodlers, because they just want to maximize value and survivability,

and they have very different viewpoints and why that currency exists. But as a user, I want there to be a thousand different currencies with a thousand different governance models and a thousand different et cetera, et cetera. So I think Bitcoin kind of is doing what Bitcoin does. In another video that you've done, you talked about how you thought back when the Internet started, it would be a democratizing force, it would take out the middleman, but now we've got like Facebook, Amazon, Twitter, Google, and you called them our new overlords. Do you think we've run again that risk of missing out on this democratizing opportunity

that blockchain technology offers? Yeah, I was always, I love the internet, I love computers, I grew up on the internet, and to me the big promise of the internet was getting rid of the chokehold that Microsoft and Intel had over the tech industry or that other companies have, over our lives. The internet is fundamentally a democratizing force. And what it did do was it got rid of a lot of chokeholes like, you know, the New York Times is not what it used to be.

Hollywood Studios don't have the power that they used to have. Even the U.S. government kind of doesn't have the same power over certain things that it used to have. The banks don't have the same power that used to have. VCs don't have the same power they used to have. So it did help democratize certain things, but it created these very thin, broad, new overlords that Ben Thompson from strategically calls the aggregated. But you just look at the big five.

You look at how concentrated power is in the hands of an Amazon, Google, a Facebook, a Twitter, and Microsoft, or even Uber. These companies essentially run natural monopolies, beneficial monopolies that help the consumer. They're not jacking up prices on us. They're actually doing quite the opposite. What they're doing is they're lowering prices on us, and they're squeezing suppliers on the back end.

But we still end up going through one company of whatever its politics are, whatever its power structure is. That's what we're beholden to. If you look at Twitter, Twitter could be the greatest force for freedom in human history. You can have one person broadcast censorship-free to the entire world. But Twitter doesn't run as a censorship-free platform, nor is it available in certain countries. If it were built on a blockchain, Twitter would be available in every country. It would be very hard to repress, and you couldn't shut down any speech.

And I think something like that needs to exist. So the good news is, I think with blockchains, the long arc of the internet is bending back towards decentralization. and I think we're actually going to have next generation of companies will be created that will be far more decentralized and have much smaller choke points than the current set do. And so you really don't worry that we will end up just with new different, you know, blockchain-based overall rights? I don't because I think blockchains are inherently decentralized. It's in their core infrastructure.

You can't change it without ripping it out. To give you an example, Vinay Gupta recently went off on this giant screed against Gab. Gab is this Twitter-like competitor that has a lot of, you know, the right-wingers that have been thrown off a Twitter on it. Gab is looking for a new home to build where it won't get censored. So Gab wants to build on top of Ethereum and do an ICO. And Vinay, who was involved early on with the Ethereum Foundation and Ethereum development, went off in this giant creed about how, Gab, you're not allowed here, we will stop you. We don't want you or your people building on top of Ethereum. And, you know, it's interesting to watch one of the, I don't know if he's a founder, but one of the early people in Ethereum sort of try so hard to stop something and basically have no effect.

Vatolic, the lead developer basically said, no, we're not going to stop anyone. In fact, you go to the homepage for Ethereum and says build unstoppable applications. Even Vatelic couldn't even do it if he wanted to because Ethereum would basically just kick him out. The community jumped all over Vene and told them to get lost. this, and you don't speak for us. And I don't even think it's possible, even if all the developers and a large chunk of the community wanted to stop them, Gav would just fork it, like happened with Ethereum Classic, you know, build on top of Ethereum Classic.

So these really are unstoppable sort of networks, and it means that you can't have censorship and you can't have central control beyond the level that's encoded into the system. And if someone doesn't like the level that's encode in the system, they can always fork it or they can go to hundreds of competing cryptocurrencies. Well, so speaking of control, you also said in another video that blockchains make individuals sovereign and put them in power. But I think the other thing that happens at that point is that then it gives people another thing to manage. And I just wonder, like if I even think about managing my own private keys or my identity or whatever, it feels like another burden, another

thing to worry about. Do you think people really do want to manage their own personal data? I think most people don't want to, but they want to have a choice of who manages it for them. So in today's model, with the way the world works, is if I need a bank, it has to be one of the Federal Reserve regulated member banks, and there's just very little innovation or competition between them. If I have my identity, Experian, TransUnion, and Equifax manage it whether I like it or not, and we saw how well that worked out in the Experian hack. So I just don't have any choices. Whereas in a blockchain-based model, I can choose.

If I want to manage my own identity, I can. If I want to put it on Civic or Blockstack or a different blockchain, I can. If I want to have a third party that I trust, there can be a thousand different third parties competing for the right to help me manage it. They can have different security models, different pricing, different policies and how they issue identity data to various people and take responsibility for it. So at the end of the day, all of this boils down to, not that this is necessarily better, but that it gives you freedom of choice across the board. So even though that's a little bit more centralized in a certain way, at least people are choosing that? Exactly. Like with Facebook, I don't really have a choice.

I want to be in the same network as all my friends and family. I've got to go on Facebook and only Facebook can operate that network. Only Facebook has access to that data. Facebook that's built in the blockchain, there would be hundreds of thousands of companies, any one of which I could say, okay, you are my manager of my social network profile and data. The others aren't. And well, you're misbehaving or you're selling my data for ads. I'm switching away from you.

So now you have reputations, you have choice. I mean, look, what separates capitalism from communism and its outcome is not intentions. Communism probably has better intentions. What separates them is choice. In capitalism, I can choose my vendors. I can choose to lead. I am a consumer. And by having the choice, I'm in charge.

Whereas in communism, because I have no choice, I've become a vassal. So the same thing happens in blockchain land versus classic internet land or classic financial infrastructure land. Classic, a model, I have no choice. There's one or two or three monopolists or federally appointed oligopolis who get to run my entire life. Whereas in a blockchain world, the data is on the blockchain. It's ultimately controlled by me. And I can cryptographically lock and unlock it for different entities based on how well they are serving me. And if they're not serving me well, I can always do it myself, worst case. Or if I don't want to do that, I can lock them all out and choose the friendliest one with the law. So in a way, it's not.

Like if you do use a centralized service with when it comes to any of these blockchain-based networks, then first of all, it's your choice. But then also there could be many more of them than there were previously. And my data is portable. And blockchains, one of the key differences between blockchain-based protocols and the first generation of internet protocols is in a blockchain-based protocol, it holds state my data is held in the network. So I can take my data with me.

Whereas good luck exporting your data out of Facebook in such a way that if there was even a competitor that has survived, that a competitor could use it. Okay, so I want to go back to the governance question. Do you have any particular model in mind of how you think decentralized network should make decisions? The decision-making model for the decentralized blockchain has come straight out of the open-source movement. So it's around commit access and consensus and drafts and requests and the ability to fork. That's sort of the best model that we've found to date for these code-based systems. the new constituencies that have been added are the users and the investors, right?

And of course, minors. So those constituencies didn't exist in the open source movement. So minors, the way that they vote on governance is basically built into each protocol. The way the users vote and the way that the investors vote is investors vote by buying and selling. The way the users vote is by adopting, not adopting. All of these can be improved. So, for example, you could see that future wallets would allow users to actually vote on the future of their currency through the wallet. So very much like you have elections, you could have your wallet basically say, hey, this month, these three currency that you hold are making decisions on these three things.

Here's what people that you trust in the community or follow on Twitter are saying, how do you want to vote? You could have a voting mechanism built directly to the wallet. You could imagine something similar for the miners in the software that they run. For investors, especially the ones who are not going to vote. speculating and buying into ICOs, you know, against all odds, they actually need to have much stronger governance. They need to be able to say, well, you know what, okay, we're putting 50 million into this IPO project, but we're not going to just give you all 50 million bucks immediately. It gets locked up into a contract where it gets released in milestones every five

million bucks, every three months. And there's a vote based by on the wallets, on the different holders as to whether we release it to you or not based on have you been hitting the milestones and have you been performing. That's the simplest level, but you can imagine many, many more layers of governance. So I think we will get more sophisticated about these things over time, but it's going to take years to evolve. And my fear is there will be a boom-bust cycle and then a crackdown, which doesn't give it a chance to evolve. But that's the way it should work. Well, how much bigger do you think this level's going to go? It can go a lot bigger. I mean, the amount of money in the space is still small. The dot-com

bubble was 1.7 trillion, and that was restricted just to the United States, and that was just accredited investors. So this one can, and those 20 years ago. So you take all those factors into account, this one can go a lot bigger. Custody has been a big problem in this space. How do you hold on to your private keys, as you were saying earlier? So I think that is starting to get solved. I think within a year to a year and a half, you're going to see a lot of very serious

solutions in the custody space. And at that point, you're going to see a wall of money coming in from endowments, the sovereign wealth funds and larger players. But even now, you know, at the beginning of this year, I only knew of two crypto hedge funds, Polychain and Metastable. And even Polychian, I think, is only about a year old. And there were a couple that were sort of just in Bitcoin like Pantera and Grayscale and so on. Now there's probably 100. So the number of crypto hedge funds gone through the roof. And I think there are all these big boy hedge fund managers sitting in Connecticut or wherever their fancy estates are saying,

wait a minute, you're making these returns, you're getting this money and you're an amateur. I'm going to enter this space too. So we're going to see a lot more of those people flooding in. So I think the amount of money that can flood in the market still is enormous. And so it sounds like you think that regulatory action will only really happen when there's some kind of correction? Well, I think the SEC is already taking regulatory action against the obvious frauds. But I think the way most money is lost in markets is not through fraud. It's actually just lost through poor investments. It's just these are legitimate people who are trying legitimate things that just weren't very good

or they were at the wrong time where they didn't get very far. So that's how the majority of the money gets lost. And I think that's going to happen. And there's nothing the SEC can do about that. That's just the market needs to develop a taste and it knows for what a good investment is. And that takes time. And so let's talk about power and how this is disruptive to those in power. What kind of threat or disruption do you think that this poses to governments?

I think the most interesting thing about cryptocurrencies is if you step back for a second, the history of the human race is a history of networks. and humans are the winning species compared to other species because we have the ability to cooperate across genetic boundaries, right? You're probably what, Chinese by origin? Korean. Korean. Okay. I'm Indian by origin.

My wife is actually Korean by origin. We can communicate. We can cooperate. We can relate. We can intermarry. These are the kinds of things that other species just don't do. They literally only cooperate within genetic boundaries, within the ant hive, within the very small tribe. And humans can do this.

because we stitch together networks by telling each other stories. And the story of networks is the history of the human race. The United States is a network. Forbes is a network. Angelus is a network. The U.S. dollars is a network. The English language is a network. So we create these networks. And generally, you have to have some way, especially networks that are allocating scarce resources of adjudicating and running the network. And historically, the oldest form of government that did that was you had a king in power, who was basically whoever the most brutal person was, the biggest tyrant, they got to be in charge. Or eventually the king got attacked by the mini kings, the aristocracy,

and they then forced them to share power. So you also have networks that are run by elites, like the medical system or the legal system or even the U.S. kind of the U.S. Republic is run more by elites than it is by a president or a dictator. You also can run a network by putting a corporation in charge, and the corporation can punish cheaters like Uber riders who aren't paying or who keep calling cards and canceling them.

but then the corporation can end up as a monopolist, just like the king can end up as a tyrant or the elites can end up as an aristocracy. You can also have one person, one vote, a democratic or a communist network, but then you end up with a tragedy of commons or mob justice. So humans have always been trying to figure out how to govern large groups of humans, punish cheaters, and reward the people who are contributing. And the best network that we've created in the last few hundred years to do this kind of thing are markets. So markets are open like democracy. or commons, they allow anybody to participate, but you have to vote with money. So there's at least

some merit-based system, but it's a money-merit-based system. Blockchains extend that concept of market into managing all kinds of networks that before would have needed a central corporation or a central individual in charge. And I think that's incredibly interesting. And a blockchain-based network, I can get rewarded for contributing whatever the network needs. So if it's a network that's allocating bandwidth to people, if I create and allocate bandwidth into the system as a minor, I get rewarded by coin from that network. And nobody's in charge. There's no central authority who then takes charge of the whole thing,

takes a 50% tax and starts kicking out people that they don't like. So I think humans have literally created a new form of governance. It is a sixth form of governance in addition to the five that came before them. And that's the kind of thing that only happens once every few hundred to every few thousand years. That's fundamental. So that's going to upend every power structure that exists. There are corporations. it's not going to upend the existing corporations,

but there are new networks that will be deployed that would have needed a central corporation that will now instead use a blockchain. There are new groups of people who are making rules amongst themselves and adjudicating themselves, who might have needed an elite to do it, who will now use a blockchain-based solution.

There are new open systems that would have suffered from the tragedy of the commons that won't because they will use a blockchain-based system. Will we get so far as to have a government run out of blockchain? I don't know. Maybe in my children's... children's lifetime, but that's a long ways out. But along the way, I think we are going to see some of the fundamental functions of government. We'll see that they're more efficiently done using

a blockchain. For example, a blockchain-based voting system would be essentially as cheating proof as you can create a system. You could audit exactly that everybody got to vote. Everybody who voted was entitled to vote, was registered to vote, but you don't get to see what their actual vote is. And it's done in a cryptographically secure way such that there's no diabol, no corporation at the center that owns the voting machines. There's no Republicans or Democrats sitting there and counting the votes and throwing out the third party votes or things like that. So that is an example of a piece of infrastructure or government that is probably better

done through a blockchain than by the government itself. Now, of course, governments don't want to give up power. So that's going to be a struggle in the process. But I think we are going to see blockchains remake parts of government. And eventually, maybe hundreds of years from now, you could actually see them replace a lot of government. Well, going back to your description about the election or your example, do you imagine that that would happen in an election that's run by the government where they're choosing to create a blockchain-based election, or are you imagining a decentralized? My guess is what will happen, like always, the government's always a final adopter of any technology solution.

They're never the first adopter. They're the last adopter. Just take a look at the DMV in the post office, if you have any doubt about that. So the way it's more likely to work is that small private organizations that do have internal elections but are worried about cheating, are worried about, you know, there are some very opposing groups on each side. You would see them adopt a blockchain-based solution first. And it's probably brand new private organizations. They're just starting up that are saying, hey, there's this, and of course the infrastructure needs to exist.

So we're still in the infrastructure development phase. But five years from now, if you're starting a group that needs to have an election, like let's say you're electing a college president. right on campus and there's like the left wing and the right wing on campus and they're really opposed to each other nobody trusts each other some clever student is going to say well I'm just going to use this off-the-shelf blockchain based voting mechanism that it's not a defunct company built you know with their ICO money and it's open source anyone can audit it it's running on the Ethereum blockchain so it's completely cryptographically secure any student can vote you're logging with your student ID using your private keys so it can't be

faked we can show which students voted And each student can audit their vote and make sure their vote was counted using zero knowledge proofs. But your vote doesn't actually get revealed. So your vote is completely private. And then we can know beyond the shadow of a doubt that these were the exact vote outcomes. That seems like a much better solution. So I could see small private organizations adopting it. And then it grows and grows and grows and grows until one day all the voters look at each other and say,

why are we using this antique system for the big one when for all the little ones we're using this better system? It's sort of like how when the iPhone first came out, corporate America was still all using Blackberries and continue to use Blackberries for a while until finally the CEO who had an iPhone at home and a Blackberry and the work and the CFO who had an iPhone at home and a BlackBerry work went to the IT person and said, what the heck are you doing? It's time to get with the modern world. I don't care what you think about the security. I don't care what you think about your apps and your provisioning and all the stuff that you use to defend your job. Just switch over to the iPhone already and I don't care how it happens. Right. So that same kind of technology adoption cycle needs to happen in blockchains.

But that takes decades. That's not an overnight thing. So what are some upcoming trends that you think we're going to see in crypto in the short-term future? I always find it's much easier to predict long-term than short-term. Because short-term has to do the vagrancies of humans. And long-term, you can focus much more on the math and the protocols and the logic of it. If I had to guess, I think there's a wall of Wall Street money coming in, like a lot of Wall Street money coming in.

I do think, I'm, I, I, this is more a hope than a prediction, but I, I am hoping that some of the top 20 currencies that are not that high quality do get recognized as such and, you know, more of the money gets concentrated into the good currencies. I hope that a lot more goes into development, especially for high quality protocol engineers. You have brilliant people sitting at Stanford, MIT, Johns Hopkins, you know, and even a lot more less than a million universities and places around the world. And these crypto economists and crypto technologists, these people are worth their weight in gold. And they should be financed such that they can do fundamental good research into governance and scaling.

I hope that scaling gets much more addressed. That's a big one. Ethereum is trying to do its proof of stake and sharding to get scaling going. Bitcoin, now that it's rejected 2X, needs to get its lightning litter deployed and actually functional so that the fees can come down and the wait times can come down. I think it would be great of government. started basically putting moratoriums around crypto regulation, just like they did around internet regulation in the early days, to give it a chance to blossom.

You know, I don't think New York's pit license helped anybody. And it's not a surprise if that came out of the state where all of Wall Street is. So I get to the lobbyists there, you know, have a certain agenda, but nevertheless, it's sort of short side of New York to say, hey, you know, we took over finance one point over, we're going to throw finance two point out of the door and hope it doesn't happen somewhere else, right? That's not likely to be the case. New York does not dictate the state of financial innovation for the entire planet. If anything, it's just ensuring it's going to end up like Detroit hollowed out as the industry moves on. So I'm hoping that some of these things will come to

pass. I hope also we'll just get better at things like custody so the average user doesn't have to worry about their private keys. We'll get better about education. So, you know, your average person isn't running around and buying an ICO. but rather they're trying to figure out what the high-quality ones are, or they're using an index, or they're just realizing the inherently highly volatile nature of these assets, so they're holding small amounts through good custodians. I think there's going to be a lot of good technology development.

In the last two years when the hardware wallets got really good, for example, more than two years ago, you didn't even have that solution, right? It wasn't very good and didn't work well. So I think we'll continue to see some stuff like that. I think everyone's still waiting for any user use cases where cryptocurrencies are better than existing currencies. We still haven't seen a lot of those. It's been a little surprising to me. I would have guessed that something like the collapse of the Venezuelan Boulevard would have led people to adopt cryptocurrencies there.

But the infrastructure just hasn't been in place. Your average Android phone or iPhone is still not geared up to be a good crypto-to-cropo platform. But maybe in one or two years from now, it'll be good enough that people will actually start transacting in crypto in places where the local currency essentially no longer works. And do you have any big thoughts that are floating around your head around crypto that you've just been thinking about recently that we didn't discuss? You know, one thing I've been coming around to is it's taking a lot longer to solve even the basics. Like how do you scale Bitcoin?

How do you build a secure multi-sig wallet on Ethereum, et cetera? and you're having really large changes like the Chinese government shutting down all crypto exchanges or Bitcoin cash coming up and competing with Bitcoin. It might be more centralized or less centralized depending on it. So crypto is, if anything, becoming more volatile, not less volatile. And so in that world, I think the right answer to where crypto heads from an end user perspective will be that we may end up stopping to talk about, is Bitcoin going to win or is Ethereum going to win or is Monero going to win or Zcash going to win.

And we may end up focusing much more on having baskets of crypto. And it didn't work with currencies because it's very hard for me to go down to the local store and say, here's a basket of the top 50 currencies in the world, right? Because they don't know how to handle Zimbabwe dollars and they don't know how to handle Mexican pesos and all that stuff. And they're limited by governments. But it's the nature of crypto that these things are completely electronic. The wallets are completely in software.

So if, for example, we could somehow agree every year, these are the top 10 crypto assets right now, and they're relatively stable and relatively high quality. And they all have different governance mechanisms of different levels of decentralization, different threat models and different adoption models, that you could then say, okay, I'm going to give you top 10 basket, I'm going to buy it from you, I'm going to sell it from you, I'm going to hold the top 10 basket, and you could almost start using it as a currency. There's no fundamental law of software that says that it has to be one cryptocurrency at a time.

So I think we may just get more comfortable with baskets. And I know this was tried in the real world with European Union originally had the, before the euro, they had a special euro basket instrument that comprised all the euro currencies. But it was a temporary thing, but it did work. Or the IMF has SDR special drawing rights or XDRs, they also call them, which are sort of a basket kind of currency instrument. But I think we may actually see in the crypto world, in the software world, that we create real baskets that actually be re-use. for real cases, and they're safer than any of the underlying cryptocurrencies. So if there's a big hack on a single exchange or if the governance model of one currency collapses or its encryption gets broken, or there's a bug in the software, it turns out to be a

scam, you know, you lose 10% at worst, you don't lose the whole thing. It's almost like using a mutual fund or something as your currency. That's right. Something like that. Yeah. It could happen in crypto land. So it's just an idle thought. I don't know what the odds are, but it's fun to think about.

Well, maybe you can find some entrepreneurs who are going to create that. All right. I'm going to ask you a personal question. It's one of my last questions. So if you run me out the door, then I've at least got my interview. What percentage of your net worth is in cryptocurrency? I got to run you out the door. No, I don't talk about private crypto holdings.

I don't even hold them personally. Okay. Yeah, no, I figure you're not going to answer that. I trust them to Olaf and Lucas. It's not my. Okay. Okay. All right.

Well, this has been a great discussion. How can people get in touch with you? I'm on Twitter as at Naval. That's the best way. All right. Well, thank you so much for coming on the show. Thank you for having me. Thanks so much for joining today's episode with Naval Robicon. To learn more about Naval and to find previous episodes of the show with other innovators in the blockchain and crypto space, check out my Forbes page, Forbes.com slash sites slash Laura Shin.

Also, be sure to follow me on Twitter at Laura Shin. New episodes of Unchained come out every other Tuesday. If you haven't already, rate, review, and subscribe on iTunes or wherever you get your podcasts. If you like this episode, share it with your friends on Facebook, Twitter, or LinkedIn. Unchained is produced by me, Laura Shin, with help from Elaine Zelphi and Fractal Recording. Thanks for listening.