Unchained - Unconfirmed - Ep.008 - Arianna Simpson of Autonomous Partners on Privacy, Cryptokitties and Crypto Regulation

Episode Date: March 23, 2018

Arianna Simpson, managing partner of investment firm Autonomous Partners, discusses this week's news that Cambridge Analytica had used data from Facebook to perhaps manipulate the 2016 election and whether that could create an opening for blockchain-based decentralized social networks. We also cover the announcement that Andreessen Horowitz, Union Square Ventures and top individual investors invested $12 million in Cryptokitties and why Simpson thinks the area of digital collectibles could take off. The Facebook/Cambridge Analytica story: https://www.nytimes.com/2018/03/17/us/politics/cambridge-analytica-trump-campaign.html Cryptokitties: https://www.coindesk.com/a16z-leads-12-million-funding-for-ethereum-app-cryptokitties/ Why Arianna isn't worried about the downturn: https://www.marketwatch.com/story/the-smart-money-isnt-worried-about-the-bitcoin-selloff-2018-03-19?siteid=rss Thank you to the sponsors of today's episode: Preciate: ​​​​https://preciate.org/ and https://preciate.org/recognize/ Quantstamp: https://quantstamp.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey everyone, here is the latest episode from my new podcast, Unconfirmed, Insights and Analysis from from the Top Mines in Crypto. This is the final week we'll be releasing Unconfirmed on the Unchained Feed. So if you've been enjoying these episodes, please search for Unconfirmed in your podcast app and subscribe today. My guest for today's episode is Ariana Simpson, Managing Director of Autonomous Partners. We discussed the Facebook Cambridge Analytica privacy breach, why we aren't so sure it will give a boost to blockchain-based privacy, Cryptokitties, and more. It's a fantastic. episode, one that you should all check out. If you like the show and want to keep listening, be sure to head over to the feed for Unconfirmed, Insights and Analysis from the Top Mines in Crypto,

and subscribe now. Hi, everyone. Welcome to Unconfirmed. The podcast that reveals how the marquee names in crypto are reacting to the week's top headlines and gets the inside scoop on what they see on the horizon. I'm your host, Laura Shin. This 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 out from the pack. OnRamp 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.

This episode is brought to you by Quant Stamp. Kwan Stamp is building the first smart contract security auditing protocol designed to secure all smart contracts in a cost-effective and scalable manner. Being developed by a team of PhDs with over 500 Google Scholar Citations, They're about to finish Y Combinator's Winter 18 batch. To learn more or request an audit, visit www.com. My guest today for Unconfirmed is Ariana Simpson, managing director at investment firm Autonomous Partners.

Welcome, Ariana. Thanks for having me, Laura. So obviously there was some really big news this week about Facebook, and I actually wanted to touch on that first. You used to work there, and the company was in the news in a major way due to revelations around a huge privacy breach, a lot of people were saying this helped make the case

for blockchain-based social networks or ways of managing privacy. What do you think of that idea? Yeah, you know, I think it's interesting. Ultimately, users have shown time and time again that they are willing to basically trade their privacy and security in exchange for usability and access to products that they want.

I'm still a little bit skeptical, to be honest, that most individuals would be willing to, you know, switch over to a decentralized model, unless the user experience were actually really good. Because I think that's something that's been historically lacking in kind of the crypto space. Yeah, I feel the same way because although we saw that delete Facebook campaign go around, I personally, and maybe I just, I wasn't on Facebook a ton this week, so maybe I didn't notice it, but I don't think I saw anybody that I know quitting Facebook. Did you? I saw one person tweet about the fact that they had, but realistically, you know, I think it's funny because some of the initiators of that movement, including I think it was Brian Acton who sold WhatsApp to Facebook, you know, I think it's a little bit convenient to say, oh, I just sold my company for, you know, how many tens of billions of dollars to Facebook and then start a movement to delete it.

And I think, you know, for most users, like ultimately, you know, they don't really care. is kind of my belief. And I think that's definitely something that folks in kind of the tech circles feel differently about. But realistically, for most consumers, it's something that they want to have access to, particularly in parts of the world where, you know, Facebook might be the main way in which they communicate or in which they even do business in many cases. Yeah, this is sort of a funniest side, but someone that I'm very close to for years resisted going on Facebook and then finally did. And I was like, oh, why did you finally decide to go on? And he does research, like he's an anthropologist basically and does research on migrants and told me that he was in a refugee camp or somewhere

and wanted to stay in touch with one of the refugees. And the refugee did not have an email address but said, oh, I'm on Facebook. And that was what got him to join. So you're right. I think that in some parts of the world, that is a major access point. I think I also agree with you that by and large what we've seen from consumers is that people actually don't really care that much about privacy. Long before I covered blockchain, I remember writing some articles where I wrote about privacy issues and saw studies that showed after the Snowden revelations, a lot of people said, like, oh, you know, I really hear about privacy, but then really did nothing about it and continued to just sign away all their rights to everything. But for that reason, do you feel like that means that a lot of

the ways in which these blockchain-based networks pitch themselves as being a way to manage privacy or to not have their data mined for a big company. Do you think that that means that those won't take off? You know, I've got to say I'm still a little bit skeptical on that front. You know, ultimately, I think the only reason why this is really blown up is the fact that it touches politics. And, you know, that's why the government is getting involved. I really don't believe that the investigation would have happened if this hadn't, you know, potentially thrown an election. So I think for these decentralized, you know, alternatives to face, I think they're going to have kind of an upward battle because there is such an incredibly

strong network effect that Facebook still has, which is why it's one of the biggest and most powerful companies of our time. And so supplanting that is going to be really difficult if the only value proposition is you can manage your own data, because I just fundamentally don't think most people really care. Yeah, although I do think you're right that if we continue to see this as an issue that threatens democracy. That could be another reason that people might feel compelled to switch. I kept getting these pitches for some of these blockchain-based social networks. And, you know, I definitely obviously find the projects interesting on an intellectual level. Do I give them a lot of chance of surviving just yet? No. But I do think that if maybe they don't, sorry, if companies like

Facebook don't improve on this issue and it does continue to threaten just the very basis of government and free societies. I do wonder if maybe we'll see more of a movement. But I want to also switch now to something else, which I know you have been interested in. I asked you, you know, before this podcast what you wanted to talk about. And you said that CryptoKitties was actually on your mind. What about that announcement about the investment in Cryptokitties caught your attention? Well, you know, I think it's kind of one of those investments, which is easy to scoff at. And, you know, it's been spurring a lot of conversation and a lot of people are making jokes about it. And I actually think it's really important to call it out as a pretty important beginning of a

trend, because I actually think that the idea of digital collectibles and kind of non-fungible tokens is going to be really powerful. Potentially, you know, a huge industry, literally worth billions of dollars, it's definitely something that can come from this. So I think there's a real business case to be made there. And also, I think, you know, from just a structural point of view, I think blockchains are incredibly well suited to tracking and managing ownership of non-fungible digital collectibles. And so while it's easy to kind of laugh at that sort of investment right now, I think it's going to prove to be, you know, a very insightful move on behalf of those investors. And why do you think it is easy to laugh at? And yet at the same time, why do you think that there really is going to be value coming out of it?

Well, so first and foremost, it's easy to laugh because, you know, it's cats, they're cute, they're on the blockchain, whatever. That seems kind of like a silly game at best. But number one, I think it's an incredibly powerful on-ramp for non-crypto users into the crypto space, which all folks in the crypto ecosystem should definitely be supportive of. Because ultimately, you know, if we want this industry to be successful and to grow, we need to bring in all kinds of people, not just kind of hardcore engineers or cryptographers. type folks. So, you know, obviously having an on-ramp that is more accessible and more friendly, really, non-scary than a lot of what we've seen is really important. The other thing I think that's important to note about the company is that they actually have pretty incredible metrics. So, you know, the last numbers I saw were like one and a half million users, you know, people have paid north of $200,000 for some of these cats. Like, that's a meaningful business. So ultimately, you know, it's easy to laugh at it because it's a cute cat. But That's fundamentally a core business. And the whole space of gaming is, you know, massive. So

potentially could be really large. Yeah. I think something that struck me is when I interviewed Vatolic Buderan for my longer podcast Unchained, he said something about how Cryptokuties was the first thing that got any of his family interested in what he was doing, which is pretty hilarious. I mean, I don't think he was saying that they weren't interested. interested in what he was doing literally, but meaning like then they had their own separate interest in his world, you know. So I agree with you that that kind of thing is a big on-ramp. And the other thing is that so I totally get why people laugh at this kind of thing because essentially it's sort of like toys and games. But, you know, that is a huge industry in the

offline world. So I don't really see how that would be that much different here. I think it is certainly a new concept, obviously, to have a digital collectible, you know, that may be another reason why they sort of laugh at it, because maybe they feel like, oh, the physical collectible is valuable because it's unique. But hey, I mean, if we are shifting to a digital world, which, you know, pretty much in any realm except, I don't know, like health care or something where like I, because, you know, I recently quit my job, I was trying to get on Cobra and I was dealing with the insurer and they were like saying, oh, well, we're going to fax the request over. But anyway, if the world is becoming mostly digital, then of course, I do think that it

would make sense that we're going to see this whole realm take off as well. So yeah. And the other thing I would just add to that point, and this is less related to the investment news, which just came out, but still very much part of the CryptoKitty's sphere, is just the fact that to me, when kind of the game first went viral at the end of 2017, it was just a really strong indicator that we need at scalability solutions urgently, and we don't have them yet. You know, Cryptokitties went from a very small percentage or zero to taking up at its peak, almost 25% of Ethereum's network traffic. And so, you know, it's exciting. We want to have these apps going viral, but we also really need to make sure that we have the foundations laid from an infrastructure perspective. So I'm looking

forward to kind of seeing more development on that front in the second half of this year. Yeah. And I think in their announcement, they said they were going to work on scalability. solutions as well. So I guess we'll see how that pans out. Certainly they have a good use case for testing the limits of the blockchain at this moment. Yeah, absolutely. So before we move on to some other topics, a quick word from our fabulous sponsor, OnRamp. If you're starting up a new project or need some 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. Founded in the aftermath of the Dow Hack, Quant Stamp, is building the first smart contract security auditing protocol designed to secure all smart contracts in a cost-effective and scalable manner. relying on humans to audit smart contracts is expensive and error-prone,

and with the exploding growth of smart contracts, that solution just won't scale. The team at Kwan Stamp is developing a solution to audit smart contracts on the Ethereum network in an automated and decentralized way that can scale with a growing demand. Being built by a team of PhDs who collectively have over 500 Google Scholar citations, Quant Stamp is paving the way for safer and more reliable smart contracts that will power the decentralized world. To learn more or request an audit, visit www.com. I'm speaking with Ariana Simpson, managing director of autonomous partners. So another issue that I wanted to bring up because it's so much in the news now and has

actually been the topic of a number of my recent podcasts is regulation. And obviously, since you run an investment firm, I'm sure this is something you are keeping an eye on. What do you make of what's going on and how that will affect the sector? Yeah, you know, I think right now there's definitely still a lot of gray zones. I think many companies and projects have taken this, what I call the ostrich approach, particularly in 2017, and just saying, oh, well, we're going to, you know, because it's not clear that the regulation applies to us, we're going to assume that it doesn't. And while that might be, you know, preferable, it's ultimately, I think, the wrong approach. And I think certain companies who have taken the, let's do everything by the books, let's, let's do everything by the books, let's, get license in every state, you know, let's make sure we have all our decks in a row on that front, like Coinbase and a number of others, are going to be very well positioned. Ultimately, I actually welcome regulation. I think, you know, that's a little bit of a contrarian perspective sometimes in our industry, but I think there's a lot of money that is

lining up on the sidelines, be that from institutional investors or other types of investors, that's really just waiting for some clarity around how some of these assets are going to be treated from a tax perspective and how they're going to be, you know, what jurisdictions they're going to fall under. And so I think hopefully in the second, you know, part of this year, we're going to see some clarity, which I think ultimately is going to help the industry mature. And are there any particular developments so far in regulation that you feel are more promising and are the direction that you hope regulation goes? Well, you know, I think if we go back a couple weeks to the comments that the chairman of the CFTC and the SECC made, overall, I think they were very positive. Obviously, they basically clarified and said that they haven't seen any or almost any ICOs, which weren't unregistered securities offering. So that's obviously potentially problematic for a number of the folks who did those issuances. But I think realistically, they are taking it. almost for granted that cryptocurrencies should exist are legal and things like that. And I think that's an important kind of foundation upon which we can build more clear rules and regulations.

The other thing I would add is just that, you know, from there are certain projects who I think are very focused on helping tokens be compliant with existing regulations. So I think Harbor is a very interesting approach to that with their kind of technological approach. So let's actually make sure that these tokens check against a set of compliance, KYC, and other sorts of rules before they're allowed to trade. And I think that's a very good approach, which doesn't increase the kind of physical or administrative burden, but solves the same problems. That's interesting.

You're not the first person to mention a harbor to me. So I think this is definitely my clue to reach out to them. Happy to connect you. I was wondering, you know, because you do run this investment firm, what are your investors either asking you or wondering about when it comes to regulation and how it will affect their investment? In terms of like investors in my fund or prospective investors. Yeah, both. Yeah. So, you know, to be honest, I think they're they're kind of watching the situation. They're not unduly worried in the sense that, you know, my focus is not as much on ICOs. I would say in general, they are

looking for clarity around taxes, and they do certainly prefer companies or projects that have taken an approach that is compliant with existing regulations, be that, you know, potentially reg D or some of the other Jobs Act crowdfunding regulations as well. And so those would be projects that sold to accredited investors and followed KYC rules, stuff like that? That's right. And so what else is on your mind and where do you think the market's going? You know, I think it's actually very, one question I get a lot is, oh, is it harder to be in

market right now, just given the fact that the markets come down significantly from the end of 2017, or are you worried about, you know, the ability to fundraise or anything like that? And I think, ultimately, I actually think it's a very good thing that the market has cooled down because what I've seen over the past five years in this space is that there's kind of these periods of financial Mania, which are followed by periods of actual building. So you saw this in like kind of the run up at the end of 2013 and into 2014, which was then followed by kind of a two-year down cycle. And then 2017, again, obviously picking up dramatically again. And so I think we're now entering another one of the build phases, which ultimately, you know, makes it a little

bit challenging as an investor because everybody loves when everything's going up and you all always look like a genius. But I think the periods of building. are really important, particularly given that, you know, as I mentioned earlier, we have so many open questions and things that need to be solved at the infrastructure layer, be it for security solutions, for scalability, you know, the exchange landscape and a number of other areas. And so what trends are you looking at for this year when you think about what is being built? What do you think we're going to see? With AMX Platinum, $400 in annual credits for travel and dining means you not only satisfy

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Those clearly touch the regulatory piece as well very much. I think right now, for example, decentralized exchanges make up a tiny percentage of overall trading volume. I think it's an area that's very promising and could potentially become, you know, a much bigger chunk of the way we buy and sell and transact tokens. But for the time being, particularly for institutional traders, that's still a way to ways off. So, you know, kind of tracking that piece is definitely one area. Another one is scalability.

I think obviously with Lightning Network now becoming available on Bitcoin and having already been launched a while back on like coin, we're seeing more of these implementations. And scaling Ethereum also is one of the big challenges it's going to be for the, the rest of 2018 and into 2019. So looking forward to developments on that as well. Well, it's been great having you on the show. Thanks for being a guest on Unconfirmed. Absolutely. Thanks for having me. Thanks so much for joining us today. To learn more about the topics we discussed, be sure to check out the links in the show notes of your podcast episode. New episodes of Unconfirmed come out every Friday. If you haven't already, rate review and subscribe on Apple

podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn. Unconfirmed is produced by me with help from Elaine Zelby and Fractual Recording. Thanks for listening.