Unchained - Why TBD's Mike Brock Is Skeptical That Decentralized Applications Will Become Popular - Ep.337

Episode Date: April 5, 2022

Mike Brock, general manager of TBD at Block, discusses how TBD’s yet-to-be-released DEX is structured, explains why he thinks decentralized solutions do not necessarily need blockchains, and tells the humorous story about how Jack Dorsey convinced him to start working on a Bitcoin project. Show highlights: what TBD is and what its relation to Block (formerly Square) is how TBD differs from Spiral, another Block-based Bitcoin firm how tbDEX works and why building on-ramps and off-ramps to crypto is so important who will be supplying the liquidity for tbDEX why Mike is passionate about creating digital identity infrastructure how tbDEX will incorporate digital identity tooling into its protocol what Mike thinks about Vitalik Buterin’s misgivings concerning tbDEX’s design why Mike fell down the rabbit hole (thanks Jack Dorsey) what lessons Mike learned at CashApp that he is using at TBD which stablecoin TBD will be working with why Mike is not a believer in DeFi why tbDEX (or, seemingly, other TBD products) will not utilize tokens Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021            Beefy Finance: https://beefy.finance     Cross River Bank: https://crossriver.com/crypto Galaxis: https://galaxis.xyz/ Episode Links   Mike Brock Twitter; https://twitter.com/brockm  LinkedIn: https://www.linkedin.com/in/mike-brock-9030813/  Introduction to TBD: https://twitter.com/brockm/status/1415795490914856961    TBD Twitter: https://twitter.com/tbd54566975?lang=en  GitHub: https://github.com/TBD54566975/tbdex-whitepaper  Whitepaper https://tbd54566975.ghost.io/introducing-tbdex/  https://tbdex.io/whitepaper.pdf  Careers: https://block.xyz/careers?search=tbd  Other Origin of name: https://twitter.com/TBD54566975/status/1424818221652324355  Vitalik’s reticence: https://cryptopotato.com/vitalik-buterin-tells-how-jack-dorseys-tbd-might-build-the-bitcoin-dex/    Other Topics Spiral (lightning development). Brock helped set up Spiral.  Twitter: https://twitter.com/spiralbtc  Website: https://spiral.xyz/  CashApp Impressive BTC revenue: https://decrypt.co/93793/block-bitcoin-earnings-cash-app-hit-nearly-2-billion-q4  Lightning network: https://blockworks.co/cash-app-integrates-lightning-network-for-bitcoin-payments/ Aaron Levie https://twitter.com/levie  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained. You're a no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto six years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the April 5th, 2022 episode of Unchained. Welcome to a new world of crypto-friendly banking with Cross River Bank. Request your first. Fiat on-off-ramp solution now at crossriver.com slash crypto. Galaxis. Create unstoppable communities by issuing NFTs with interactive dynamic utility traits that allow any creator to engage with, reward, and monetize their following. Buy, earn, and spend crypto on the crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first 30 days. Download the crypto.com app and get $25 with the code Laura. Link in the description.

This episode of Unchained is brought to you by Beefy Finance, the multi-chain yield optimizer. Beefy is the easiest way to earn more from your crypto. Deposit funds into Beefy's secure vault to auto-compound yield across 12 blockchains. Got crypto? Choose Beefy. Today's guest is Mike Brock, general manager of TBD at Block, formerly known as Square. Welcome, Mike. Thanks for having me. Super happy to be here. Let's start with some basics. Obviously, Square slash Block has undergone some big changes in the last year, but many of them are more just announced as opposed to fully realized. So can you give us the full context of what TBD is and why it is that Square decided to launch this new initiative?

Yeah. TBD is our new. business unit at the company, which sits alongside our, I guess you could say, I don't want to say legacy business. It's probably too strong a word, but Cash App Square and our second most newest business unit title. So one of the things that, you know, as a company we've been really striving towards is building towards mentality that we talk about internally as our ecosystem of startups and as part of a coherent ecosystem that works together and reinforces the other. So TBD adds to that, I think very apropos to what we'll be talking about today by focusing on our efforts around decentralized finance, cryptocurrency, particularly Bitcoin,

and our efforts around decentralized identity, which I hope to talk a little bit more about today as well, which we see as like really the big unlock that needs to happen to allow us to gateway into this decentralized future. And the other party question around like, you know, TVD and like what it is, we are very focused on solving what, what I call the onboarding or the on-ramping problem into the crypto world. The reality that we live in today is that the average person goes about their day,

and they pay for things, they pay taxes, they receive their salary, their hourly wage, they deal with money in many different ways. And the truth of the matter is that most people today don't really have like a practical use case for Bitcoin or other crypto technologies. I think we should just admit this. We do need to admit this is an emerging technology. I think we also need to admit that when we look outside the United States and develop economies, that actually is less true. There are, in fact, places in the world the cryptocurrency is playing a very important role. I would like to involve the situation in Ukraine. I think Bitcoin and crypto has had a very large impact in terms of humanitarian fundraising.

I couldn't help but notice that the International Red Cross has actually started accepting crypto donations for help in Ukraine. These are obviously very, very real things that I'm very pleased to see. But in terms of what we're trying to do is, you know, we look at the potential of this technology and we see that potential, especially in that very powerful example of unlocking a future where access to the financial system is not contentioned upon credit worthiness or quite or whether or not, I mean, I guess you would say whether or not a government wants you to have, access to the financial system or not. And I say that not so much directed at democratic governments, but in situations like we are now seeing in parts of the world where people's financial access is used as a weapon of political disenfranchisement. So we look at this, we look at that and we think that that's like a future that we want to see. And to do that, we need to build tools to let people

onboard and on-ramp into that ecosystem. And so TBD's focus is building those on-ramps, building a massively distributed and decentralized system of liquidity for linking the existing financial system, TheopRail's, into the decentralized system through a series of open-source, open-proticle nodes that we call TB decks. We put out a white paper on this protocol, last November, right before Thanksgiving weekend here in the United States,

really detailing what it is and how it's going to work. We can get into the details of that. But broadly speaking, this is the theme of TBD, which is building infrastructure to enable individuals, businesses, institutions, and yes, like even governments to interact with this ecosystem in a way that, that will ultimately allow these technologies to become daily parts of people's lives. And so we are, you know, we are a far more sort of, I guess you could say, platform-focused

business as opposed to like a consumer-facing business, like cash app. And, you know, in our, you know, I guess you can say we're more like a strike than like a traditional like consumer-facing brand in that sense. But I think that's actually exactly like where we need to focus. And so my next question for you was going to be about how square crypto became spiral and then for you to differentiate it from TBD. But it sounds like that's kind of the more consumer facing business. And then yours is the one that's more B to B.

I wouldn't characterize our business as B to B or B to C. I think what you should expect to see is more of like a developer focus, like a developer focused platform ecosystem. There are certainly ways in which that could have like consumer facing elements and institutional facing elements. I think it's really more about building, you know, fit to purpose tooling to build decentralized solutions, many of which may have very direct consumer applications.

Okay, but Spiral is more consumer-facing? Spiral is not a business. I want to, let me, I explicitly did not, I explicitly did not mention them as I talked about our, as I talked about our business. They are not one of our business units. They are an internal, purely open source, I would say like almost quasi-quas-block-funded,

initiative to just invest in the Bitcoin ecosystem. There is no revenue model that's going to ever be contemplated for Spiral. They are a pure open source arm. They receive a budget from the business every year that we set and they go out and they invest in what's best for Bitcoin. Whether or not Spiral, you know, we don't have any, I want, we have no influence on them. We like Steve Lee and the team are their only mandate is do what's good for Bitcoin and they have done a great job with the development and the Lightning Development Kit and they're working on the Bitcoin development kit and there'll be lots of awesome future developer goodies that

they're going to continue to work on but they're working for Bitcoin and we're sponsoring them essentially so they are not a traditional business unit like TBD where we do actually have have a mandate to generate revenue products and services and contribute to the overall business. So that's like an important distinction that I'm happy to clarify. Okay. However, I guess one thing that's interesting to me is that both of them do seem developer focused. And so it does sound like their efforts could be complementary.

Yeah, I think that's true. And yeah, how do you see that happening? Yeah, I mean, it's a very common question I get. Like, what's the difference between TBD and spiral? Because TBD also has this really strong open source focus. I guess the way I would, I don't, I guess the way I would try to, if I were try to draw analogies to make it easier for, I guess, people to understand how we think about it differently is, I think TVD is trying to be a open source company inside Block that's a

lot more like a red hat or a cloud era where yes we are investing in open source protocols and tools and we are yes looking for monetization opportunities and spiral is more like the Linux foundation in the sense that like they they are like a purely sort of like you know quasi charitable organization and it's like not actually they're not actually a charitable organization. But like we kind of treat them that way, that they're sort of entrusted to just kind of like do what's good for Bitcoin in the same way that Linux Foundation is trying to do what's good for Linux,

which is like different than like say Red Hat. Red Hat is also contributing to Linux, but they're also a for-profit company. And I think that's kind of the same way if you're trying to like find like a, like some sort of pattern recognition to kind of see, understand the NERN's TVD and Spiral. That's like the analogy I would come up with. And so, as you mentioned, Spiral is focused only on Bitcoin.

And well, TBD, I mean, you phrased it a little different. I think you said that it was primarily focused on Bitcoin. Will you look at other chains or explore other chains? Or do you think for now will pretty much only be Bitcoin? We will be investing in stable coins. You know, this is not you. I mean, we've said this publicly. Like, we think that stable coins

are like a very powerful tool for improving the payment ecosystem. Going back to what I said before about the reality of where people currently exist in their lives is that, you know, fiat currency is still a thing. People still rely on it. They get paid in it. They have to pay in it to obtain products and services. In the future, we believe that that Bitcoin will become a more viable currency. for day-to-day use, but today it's not.

So we believe that, like, creating on-ramps into the decentralized economy of I as stablecoins is one of the things that TBD is investing very heavily in. As it pertains to our disposition on Bitcoin, we definitely, like, see TBD as being, like, a very important on-ramp to providing decentralized Bitcoin liquidity in the world,

because we do believe in Bitcoin. Jack says that he, you know, that we think of Bitcoin as the native currency of the internet. And from that perspective, like, we see ourselves uplifting that vision through the liquidity that the TV Dex network will ultimately provide. And part of that will be supporting stablecoins. So I would say that we're not purely, like strictly speaking, a Bitcoin focused entity, although it is a very important part of our mission to advance the cost of Bitcoin.

So before we get into more on that, I actually also want to talk about your background. How did you get into Bitcoin and why did you decide to go all in on it? I've told this story so many times, but I love telling it. The truth is I was pretty disinterested in Bitcoin at the time that I was kind of of pulled into it. Long and the short of it is, in the period starting right after the election in 2016 and kind of coming, coming back and decompressing from, you know, the sort of the shock of, you know, the political dynamics in the United States having shifted so drastically,

we kind of came back and, you know, we're starting off the year. And, and like, we started with a hack week where everyone in the company basically gets to work on anything they want to work on for a week. The whole company, you know, just basically picks up. They bring teams together. They decide like, hey, I'm going to build. a feature in cash app that will do this or I'm going to people actually sometimes people don't even work on products sometimes people like decide that they're going to you know try and improve little things in the office or sometimes they sometimes they sometimes they'll be initiatives like improving human like you know people programs inside the company so hack week is this really is this thing that we do and I was at the time I am working on our cash app banking and cash card product, which I had been shepherding for almost two years at that point. And Jack Dorsey, our CEO and founder, came up to me right in that early January and said, I want to do a hack week project with you.

I was like, oh. And he said, I want to do Bitcoin. I think I looked at him and I was kind of not really like, like like like like like sure whether to take it seriously. Um, and he's like yeah, I want I want to to build Bitcoin. And I, and I said to him, you know, I'm not going to participate in Hackweek this year. Because, you know, I'm, I'm, I really, I really need to get this stuff done for the, you know, the banking and cash card launch in a few months. And he was, and he was like, I really think,

I really think we should do Bitcoin together. And I was like, I was like, I was like, I was like, Jack, I can't. And like, I don't know anything about Bitcoin. I don't really believe in it. And I, and I was just like, I can't. And so Jack, you know, was like, well, I'm not really going to take no for an answer. And so I'm just going to like set up camp beside your desk until you agree to do it, which, which literally happened. Jack literally basically, like I was, we had these like trading like trading floor type desks at our at our headquarters and in cash app. And it just so happened that the seat to the left of me was not actually taken.

So it was just kind of open. So Jack just was very easily able to just camp there. And so he sat beside me. that entire day, sat there on his phone. I would look over at him. He'd be texting and emailing with people and he'd look up and he would be like still here. And that went on for a day and a half. And it was actually on day two of the hack week that I just broke down and agreed to do it.

And I basically started writing code for the first time in a while and just trying to figure out. Like, I didn't know anything about Bitcoin, had no idea how it worked. Like, I started writing code not even knowing, like, what am I even doing? Like, went and found some, like, open source Bitcoin libraries and just started looking at the API documentation and trying to make sense of it. And I was like, and I, so that, that was how it happened. And it was just, like, all right, fine, whatever. Just, I'll do it. I, I did another podcast recently where I told the same story. But yeah, I didn't, I didn't come to, to Bitcoin through like any sort of like spark that went on my own head. It was, it was really Jack, kind of really like was the one who was

really inspired by by Bitcoin and its potential. And he just saw something in it. And, and he really wanted me to work on it for the hack week. And then, and then after the hack week, he wanted me to continued to work on it. In fact, he wanted to ship it as a product, which did not immediately want to do as well. And he also had to continue to lobby me. And what was that product? It was the product that we shipped in cash up, which was the ability to buy and sell Bitcoin inside a cash app, which was literally the craziest thing I'd ever done. in my career. Not not just because,

not because like, I mean, it doesn't sound crazy now, but in 2017, we were a publicly traded company. There was no publicly traded company in the United States that was buying and selling Bitcoin, like a publicly traded,

regulated, like, like consuming, like doing consumer financial services. And the biggest problem wasn't, honestly, at the time to doing it, wasn't necessarily,

government regulation, like a lot of people kind of think. I mean, that was like a major concern. There was concerns at the time on whether or not the SEC was going to consider something like Bitcoin and security. And, you know, we had all this sort of like risk analysis going on, like from a legal perspective. But it's actually our, our partnership ecosystem. You know, we had, you know, we have all these like we're interconnected into the financial system, bank partners, like, you know, payment network partners. And it's actually, it was. actually that ecosystem when they kind of found out that we were doing Bitcoin, they were like, whoa, whoa, what are you guys talking about? We want nothing to do with this. And so it became like

a really tough slog to figure out how we were going to launch it. So that was that was the craziest year of my life. And here I am now, like a few years later. Weirdly enough, one of I think the biggest champions for this other company. Who would have thought? Well, so you make it sound like you were sort of forced into this, but it sounds like along the way you must have had some kind of light bulb moment or something that made you fall in love with it or at least begin to like it. So do you remember what that was? I don't think it was like a single moment per se. If I'm being honest, I think the first two or three months of working on it, I was kind of in search in my own head of like a raisindetra for the for the, for the. effort. I think what really clicked for me, one, like at a certain point was actually just kind of going back to what I had been passionate about before discovering Bitcoin. So I talked about how I was working on our cash app banking and cash card strategy. And at the

center of that strategy that I was, you know, one of the principal architects of was a really obsessive focus on trying to maximize financial access to individuals in the United States who are underserved or unserved by the banking system. It's a crazy statistic, but there's about 11 million adults in the United States who have significant trouble accessing a conventional checking account. And this was really at the sort of center of what we were trying to do. do with Cash App at the time. And one of the things that I eventually realized, actually while working on Bitcoin,

I think it's kind of really like really dawned on me at one point was that the incentive structures of the financial system that we were a part of, whether we liked it or not, made it very, very difficult to provide financial access to everybody unconditionally. And the reason for that is like varied. It's, it's a, a mishmash of, you know, like regulations, well-intentioned regulations in some cases that have negative consequences. It's the fact that the payment system is like old and antiquated in other cases. You know, the thing that I now realize today, like very, like, viscerally is that Fiat payment is almost

at least in the United States, I won't speak to other more modern systems and other countries that I'm not as familiar with, but at least in the United States, like the ACH system, forces most payments to essentially be systems of credit. Like a payment is a credit, even a debit card payment is a, requires the provision of credit at some level, because settlement is not instantaneous. It takes several days in the back end for final settlement to occur. So there's always counterparty risk in the system. And if there's risk in the system, markets will price it in.

And that turns into, that gets priced in in in several different ways. And you can be priced in through fees or it can be priced in through access itself, right? If there is a fear by a financial intermediary that certain people below a certain line of, credit worthiness will create situations where the intermediaries get left holding the bag. And the way that that happens is through, you know, payment reversals and chargebacks. There's like always a way in this system of like credit in like, you know, credit based payments in the system that like accounts can go negative. They could be like even there's no flag like this. People don't realize this.

But there's like no flag that a bank can really tick in their software that says do not let account go into overgrap. You might think that that would be possible, but it's not really possible because the payment system is asynchronous. So there's always a possibility that the asynchronicity of the system will leave an account negative. And so banks have to take that into account when they consider offering a checking account to someone. And that's why you have to do a credit check to get a checking account system.

And when I realized that and I was like, wow, there's like really no way to solve that problem without rebuilding the payment system from scratch. And then I realized one day, wait, we have revisited. built the system from scratch, and it's called Bitcoin. Yes, this is why when I first learned about Bitcoin in depth in May 2015 and really, really understood it, and I was

vetting the Forbes FinTech 50 list, so all the fintech companies were telling me what problems in the banking system they were solving. I immediately knew this technology is superior, and there is no way it's not going to win out. It was just clear to me because everything in the banking system decades old. So yeah, it sounds like a similar epiphany to mine. So let's talk about what you're

working on. As you mentioned earlier, one of your announced projects is TB decks or the TB decks protocol. And the way you've described it, or TBD has described it, is that it aims to create ubiquitous and accessible on ramps and off ramps that allow the average individual to benefit from crypto innovation. So tell us a little bit about kind of the problems that TBDBD B-Dex aims to solve and how it works? Yeah. So the main problem it aims to solve is the one that I described the opening of the interview, which is to create ubiquitous access to the crypto ecosystem.

And the way that we hope that that will look is going back to the discussion we just wrapped up around how I had that epiphany around Bitcoin is ultimately allowing people to self on board into the system to the maximum extent possible. I envision a day where you can set up a self-custody wallet to hold Bitcoin or stable coins. And with that self-custody wallet, supporting the TBDex protocol, you can ultimately reach out into the network and say, I have this payment instrument that's linked to, you know, a bank account or some like, you know, like Fiat payable account, like somewhere in the world. And I want to find somebody who is willing to accept this form of payment and like also using the TV Dex protocol, negotiate the necessary

identity exchange, which is, yes, regulatoryly necessary in, in most countries, to, establish like a transaction of value for value, Fiat for tokenized value. And to do that using an open standard messaging system defined by the TVX protocol and buffeted by the identity, the decentralized identity protocols that we're working on, that will allow the creation of a decentralized sets of liquidity nodes. across the world that anyone can operate in theory.

Regulated exchanges can operate if they so choose. We will operate. That is one of the things that DVD will do. We will stand up our own nodes of this network. We are also working with other companies that are also interested in operating these nodes. And the idea is that, like, yeah, like you can, you can directly, like, set out asks for many different exchanges. not just like centralized exchanges to bid on the exchange of that liquidity in a very decentralized way. So it is a take on the decentralized exchange.

It's a little bit different than the decentralized exchanges we've seen up until now, which are really, really focused on creating, you know, atomic swap networks and, and creating, you know, and doing automated market making. this is different in the sense that what we're really focused on here is finding a way to connect the decentralized crypto ecosystem back to the Fiat system in the way that is at least as decentralized as possible. The truth is that Fiat is not truly decentralizable. We all, everyone in this space understands that, right? At the end of the day, it's a government issue currency. It's controlled by the government. The supply of it is controlled by the central bank. It's a very centralized thing. But to the

extent that like money services businesses that are in the business of exchanging fiat money for tokenized assets such as Bitcoin and stable coins, that we think that can be decentralized. We think the provisioning of that liquidity is at least decentralizable and commoditizable using open source, open standard protocols. And that's what TV Dex is. So in a moment, we're going to dive a bit more into TB Dex and some of the decentralized identifiers that Mike has been talking about, but first a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com, the easiest place to buy, earn, and spend

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Back to my conversation with Mike. So earlier when you were talking about TB decks and how it worked, you know, obviously there would need to be liquidity in the system. So who are you imagining would provide that liquidity or how do you plan to incentivize people providing liquidity? We will provide it on day one. You know, we made that decision that, you know, if you want to catalyze a network, you know, you need to show, don't tell, which is,

which is one of the things that Jack used to say back in the early days. So, you know, we're, we're going to show a fully working network. And we're going to be in more than one country when we watch the network to really show the power of something like this to enable not just access to the crypto ecosystem. But, you know, and like, like the potential. to use this technology for, you know, disrupting traditional remittance payments is something that we think is like a worthwhile initiative. And actually, I think one of the really, I think remittance, quite honestly, is one of the first obvious, you know, areas for product market fit for Bitcoin and Crypta more generally.

And so, you know, we're taking a, we're making a really big push into the international arena. Right. But if TBD is the sole provider of the liquidity, then how does that affect kind of the decentralized aspect of the exchange? Yeah, I mean, it's a good question. We are working with other companies that are planning on also launching nodes on the TV Dex network, at least in the United States and potentially around the world. We don't have, I mean, this is the biggest risk, right, to something like this, that, like, you know, that it doesn't get widely adopted. Our belief is, though, that the incentives to adoption are actually quite strong.

And I'll tell you why. And the reason why I believe more players will come in and provide liquidity in the medium term. Well, it is true that this technology is, like, very disruptive to an, incumpancy out there, like in, in like the traditional like payment space. It is also true that there is an entire ecosystem of even traditional businesses that that seek access to a more accessible, cheap, and reliable payment system. And so one of the things that really surprised me when we released the white paper was I totally expected that I was that I was, I going to hear from the crypto industry at large when I put that out there. And I did. I got my

LinkedIn inbox was filled with, you know, the, you know, the CEOs and biz dev people from crypto companies. But what actually really surprised me was how many like sort of legacy companies reached out and said, wait, like, could we be a part of this? Like, could this be like a way that like, we could actually build like a better like payment scheme where we're not like beholden to these like old crappy payment systems which suck and it's really hard to like manage like risk loss and the transaction costs are high. So that was that was actually like one of the biggest validations for me. And we do continue to have.

I mean, I can't unfortunately like those conversations are not not something that I can talk about publicly. I would like to. I would encourage people to. We do try, like one of the things is we do try to be radically transparent. Unfortunately, some of the people working with are a little bit more skittish about working in public than we are. So I do have to respect, I do have to respect their desire for privacy. But I will say that I do believe that there will be more people than us providing liquidity.

And I'm very confident with that. So you keep alluding to how these peer-to-peer transactions could be based on decentralized. identifiers or what you call DIDs. What are some examples of these decentralized identifiers? So this is a very new old idea. The idea for decentralized identifiers has been around actually for quite some time. And there has been movements afoot on the internet since actually is as far far away as the 1990s to come up with universal. centralized identifiers for identity on the internet. And in fact, a lot of the technologies that we're now trying to adopt and push forward

do have the roots in some cases going back that far. So I think it's not so much. I think that there's a few things that need to be said, right? Like one, decentralized identity has not entered its heyday. It is a new technology. But I think that it is the technology that needs to exist if this future of decentralized finance that everybody in this space believes in is ever going to exist. And I think a lot of people hear that and they think it's because I'm talking about

compliance with KYC and IDV and all of these like regulatory regimes. That's not really the reason. The reason why decentralized identity is necessary for decentralized finance to exist and be a viable linchpin of the economy is identity is necessary even between two private parties to establish trust, to establish like provenance of ownership for that trust to be something that can be represented to third parties that other people can vouch for other people can create what we call webs of trust and allow people to ultimately engage in low risk, low cost transactions. The example I like to use, and I don't also want to minimize the fact that, yes, we do have

to comply with regulatory obligations around KYC. But I really like to push this point, though, because I think that people focus on that a little bit too much. And I like to use the example of, you know, imagine like imagine if Amazon. was a completely anonymous online company. You had no idea where they were based. You had like no, there was no number to call. There was no email address.

There was like really no, there was no way to like prove that the product that you just bought and sent Bitcoin or some other cryptocurrency to pay for actually exists in a warehouse and they actually had the intention to send you that product. Now, like like, like, no, but this is like a really.

important point. I think people take this concept of social trust for granted. Like we take, we take for granted that we can trust Amazon because we know it and we know that like we bought from them time and time again and like our Amazon prime deliveries just keep showing up. Sometimes they don't and Amazon has good customer service and they refund us. But we take for great, we take for granted that that that's like a thing. And I think there's this element in this industry. There's this assumption that exists that I think is like actually just. just like really, really wrong. That like we're heading towards this utopia in the future

where we'll be having these like pseudo-anonymous or completely anonymous like financial transactions where we just don't have to know anything about the counterparty and that we'll all sort of be like hiding in like digital, in this like digital like darkness hiding from the government and anyone like monitoring us. And my question is like, well, if that's true, like, are we going to like if you want that to be true to them I guess we're going to have to set up

anonymous drop boxes for you know the products to be sent to and hope that like it actually shows up and and hope that like with no recourse to you know trust to these like anonymous like entities that we're transacting with I I just don't think that that's like a viable future the truth is is that we need identity like if I'm if I'm doing business with you Laura I want to know that you are who you say you are. I want to know that that QR code you just presented me actually belongs to you. And it's not just some hacker that's like created a deep fake of your of your face and and is like pretending to be you. And it's actually providing me a QR code that points to a Bitcoin wallet that is like actually in some far flunk part of the world. And I'll never see my

Bitcoin again. And then when I call the real Laura Shin, she's like, I don't know what you're talking about, Mike. Like I didn't like offer to sell you that. So. And then I'm like, by the way, I'm sorry, but you just got rug pulled. Yeah, no. So I think this is like really why like decentralized identity is really important. And I think that like people haven't woken up to the fact that if someone doesn't solve this problem and operationalize it, these are like the real like very tangible problems that the decentralized financial world are dealing with. Yeah, but the only thing that I would add is I feel like people are already learning this right now. And it's not with necessarily even buying physical objects, but even with buying digital objects. the whole NFT space right now is just full of very similar rug pulls.

And I feel like all those people, they would probably say amen to what you're saying. Yeah, no, totally. And so this is why decentralized identity is like one of our biggest lifts. We are choosing to try and standardize on the existing W3C, you know, DID specification, which is currently in draft. It is also the technology that Microsoft's ion is built on top of, which, like surprise, surprise, like we are also like working with. So through that, you know, like through that lens, like we think that this, this, this, this, this,

the time for this technology is now. And the desire, the great amount of desire for for building decentralized financial systems and, and operationalizing things like Bitcoin and self-custody wallets is, is now the killer app for decentralized identity. It's not that decentralized identity is a particularly new technology in the sense that like a lot of, a lot of the things that we're now working on have been around for years. But we think now is the time. Now is, like you, now is the,

is where like the great sort of like product market fit use case now exists, which is people want to be able to self custody, you know, tokenized assets like Bitcoin. You know, you mentioned NFTs. I, you know, we've been critical of them and we can talk about that as well. But, but like, you know,

I'm not like, you know, people are free to do what they choose. But insofar as insofar as these technologies exist and that we truly want to have a decentralized experience, we have to change the account model of the internet on its head. And we have to put the account model back in the individual's control. The account model of the internet today is highly centralized. It's the thing that I think not enough people are thinking about in this space, which is that like we log in with Google, we log in with Facebook,

we log in with Amazon, we like literally have given our identity to these big centralized companies and we now use them as like the way in which we authenticate and represent our identity to the internet. We don't control our own identity. And we don't have the tools to,

honestly, like other than like taking pictures of our driver's license and uploading it to like websites. And so yeah, so the decentralized, technology that we're working on today, which like uses cryptography and, and like, you know, the public key infrastructure in the same way that, that, that cryptocurrency

wallets do to be able to like actually have a piece of identity that you own, that you control. And yes, that other third parties can attest, like, credentials to. I can have a decentralized identity that has like a linkage to like a company like block like TBD that has KIC'd the customer and has put that has has like basically confirmed that you know you are who you say you are this is your legal name this is your birth date this is your social security number that this is you know we've done a credit check this is your FICO score and you can have like a company like us vouch for your DID and issue you a verifiable credential that you can then potentially reuse

where other companies or other players can say, well, if like Block or even our competitors, like Coinbase or PayPal did it, that we can say, look, like, we see that and we recognize that that reaches a certain like threshold of like, you know, of provenance for that person's identity. And we can like essentially use that to establish a greater degree of trust for that identity without compromise.

minimizing privacy, where the individual remains in complete control of the ability to distribute that information as they see fit. They don't have to, like, whereas today, you have no control of that. You have no ability to know, like, like, who has your information and why. You have no ability to revoke access to that information. And even beyond that, the technology provides for the use of even greater privacy preserving technologies that allow us to establish trust like zero knowledge proofs. We imagine a world where in the future, you can have a DID and rather than having credentials that are filled with like privacy compromising information or information that could

like enhance your risk of identity theft could actually be like provided in an opaque but still provable way. using zero knowledge proof. So you can imagine a future where I have a DID. I'm in California. So like if the state of California wanted to support the ID, say at the DMB, the DMB could choose to issue a verifiable credential to my self-sovereign identity and say this person, we issue, like in the same way that we send a crypto payment to your,

you know, your public key, they can send to my public key that like I know you are who you say you are and your license to drive in the state of California. And that can be something that any other person in the world could verify. If I chose to say, here's my identity, I'm providing you the verifiable credential that California issued me. You can go and take that verifiable credential and you can ping the DMV directly and they will verify that, yes, he is licensed without actually even having to disclose my name or my address or any of that other information, which typically goes through it, but still have 100% confidence that it is. true that I am who I am and I am a licensed driver, what you've really done is you've accomplished the best of both worlds, right? You've, you now have an identity that you control, that it's yours, that no one can take away from you, that other people can attest elements of,

of credentials to, like driver's licenses, like KYC, like even just like, I don't know, like your eBay trust your eBay score as like a seller or a buyer, whatever it is. And that could be reused to create like new ways of things. thinking about risk and trust that doesn't require us to like do the thing that we currently do, which is like give all of this like privacy compromising information to everybody. But instead create this like buildable social trust scheme that's shareable and viewable and in full control of like the individual that will ultimately, I think, allow us to achieve what I think we all want, which is like a decentralized financial system and one that is

far more privacy preserving and actually far safer for everybody, safer for me and actually safer for institutions. Now you have this like privacy protecting and preserving system that also gives people high confidence that people are trustworthy. And this is so this is this is the the true potential decentralized identity and why I think it's the great unlock for this whole quote unquote decentralized financial system and web that people are talking about. Yeah. No. question that, I mean, resolving this issue is going to be huge because just I feel like anything that tries to connect the blockchain to something in the real world is a really, really, really difficult problem to solve. And there's a reason right now that, you know,

kind of all the things that have taken off in the blockchain world tend to have been things that are inherently digital and not things that are, you know, exist in the physical world. But I did want to ask you a few more questions about TB decks. You may have seeing that Vatolic Buderan told Bloomberg's Emily Chang that he was skeptical of defy on Bitcoin. He said the difference between Bitcoin and Ethereum is that on Ethereum, there is native functionality that allows you to essentially directly put either ETH or Ethereum-based assets into these smart contracts, into these lockboxes where there is then arbitrary conditions of any kind that can then govern how these assets get released. Bitcoin does not have that functionality

to the same extent. Jack is basically going to have to essentially create his own system that, forces those rules. And then on the Bitcoin layer, the bitcoins will just have to be owned by probably a multi-sig wallet controlled by Jack or just the participants in the system. It looks similar, but it will end up being something with a much weaker trust model. What's your response to those comments? So my response to this, I've debated some of these issues publicly already on my Twitter timeline in other places, and I'm sure I will here and in other forms. But what I would say is, I actually just kind of reject a lot of the premises of these arguments. And so I feel like there's a lot of like talking past the other side of the argument here.

Because I feel like when someone says like, well, you know, the Bitcoin blockchain doesn't have, you know, these capabilities, these technologies. So how are you going to do these things? There's this like unstated premise that in order to have decentralized, systems, you have, there has to be a blockchain. And this is like the premise that I think that like doesn't get heard enough. Like I think people think of me as like a Bitcoin maximalist. I don't think I am at all. I mean, I'm a big supporter of Bitcoin. Like obviously like I want to see it succeed. But I don't have some sort of like partisan like affinity for it where like like I,

you know, like my identity is tied to it. And I want to. want Bitcoin to like win like come hell or high water. And like I honestly, I, I, I, I like the, the folks at, that's Lana and like, and I'm, I'm friends with like some of the major investors and those things. And we've had like very like heated debates about that. And I so, and I wish them well. And honestly, like, if I am like proven wrong and like these like ecosystems like flourish and they like grow into what, what they're hoping, they are, I'll be super happy to admit that I was wrong and maybe TBD will be building like solutions on top of those systems in a few years. I'm always open to being wrong. It's something

like I try to pride myself on. What I will say is like the nature of my doubt and the reason why I haven't jumped on that bandwagon is because I don't think blockchain is needed for decentralization in all cases. In fact, I would argue that blockchain is a terrible. way to decentralize a lot of things. I like to think about this from a very first principles basis. What is blockchain good at? I think it's very good at money. I think that's what it does on Bitcoin.

I think that's what it does on a lot of these blockchains. And I think that that has consistently been the thing that it has proven itself good at. You see it. That's what people are doing on crypto exchanges. They're treating it like money. They're treating it like a cash like asset, like case proven. product market fit established. Where I'm really skeptical is, yes, like in like the argument for smart, like generalized smart

contract chains and like what that means. And the reason why I'm so skeptical, I generally like, I generally think that the unit economic story of smart contract chains just doesn't make sense to me from the perspective of a, from like a somebody who has built like product at scale for consumers. I have a lot of real questions about the assumptions that are made in that space. The first is that the reason why

that we will see adoption of platforms and ecosystems built on top of these smart contract chains that are powered by like Solana or Ethereum is that there's seemingly a pent-up demand for newly envisioned services built from the ground up that individuals have a stake in, that they have some sort of control in, that they can have ownership in, that they can use cryptocurrency as micropayments in lieu of like ad-supported models in order to like, you know, establish like, you know, like greater freedom and like buy-in and like this really very like quite honestly utopian vision

for the internet and actually i think that would be great if that was true i just don't think that human nature works that way um i my my counter argument actually to uh that that story isn't even like inside the crypto ecosystem itself it's it's like it's platforms like ticot right like everybody has understands that like that a platform like that having you know the like high profile you know like censorship at the behest of a government that didn't doesn't want certain political messages to be present on that platform led to a huge political blowup the last the last administration of this country tried to force the sale of its U.S. assets to Microsoft you know and ultimately that was killed in federal court in the United States.

And so, you know, bite dance, you know, still has full control over that platform. Now, the reason why I bring this up is that, like, despite the fact that everyone knows this, like my daughter knows this. My daughter's 13 years old. She understands this.

She understands that the Chinese government probably has undue influence over the platform. But she doesn't care. Like, she does, like, this is the thing. Like, the individual, individual customers do not, like, do not react to, like, to these very, very political and ethical and moral incentives. Like, I mean, I do actually. I don't use the platform for that reason.

I am very principled about the products and services I use. But my daughter isn't. And neither are most of the people around. I don't know why you're bringing this up. Are you saying that defy and Bitcoin will be more centralized and people won't care? I don't know where you're going with this. No, what I'm saying is I am skeptical of defy as a smart contract-based system at all. So when I talk about defy, what I'm saying is the ecosystem of decentralized finance is not going to be like this thing that's like completely been built on top of blockchains.

It's going to be a set of decentralized systems, decentralized identity, you know, commodified and decentralized services on the internet. but I don't believe it's going to be built as like touring complete applications running as decentralized apps on Solana or Ethereum. Like I think this is like, I think this is like why like we're talking like past each other. The reason I'm talking about TikTok is because I'm talking about consumer incentives around why would somebody adopt say, I don't know, like like why would you use a social network that's built on top of Solana or on top of Ethereum? Well, like is do you really, do we really think that?

consumers are going to build are going to get salana or Ethereum wallets and engage in micropayments to interact with these new decentralized services that I hear you know I hear people in that system I hear the people at Andreessen Horowitz and stuff talking about how consumers are going to want to use this because they want to escape big tech censorship and stuff like that and I just don't believe that like the incentive structures that people think would lead to consumers like jumping through all these additional hoops to achieve decentralization of every everything, this web three narrative is real. I don't think it's real.

So, yeah. So you're saying that Bitcoin, Defi will be more centralized in different ways, but people won't care. I don't know. Somehow that's, it just feels like that's what you keep saying. No, no, I don't think that the only way to create decentralized financial services is purely through finding ways to like put the entire instrumentation of services on the chain. itself. I think decentralization is not purely a function. I think what has happened is that people are using blockchain and decentralization as like interchangeable words. And I don't think that they are. Right. Well, that's just because, well, but I mean, typically when you have a blockchain, you have, you know, this distributed set of nodes that are running things. And so it isn't like there

is, you know, just one entity that's controlling the network. So I think that's why people tend to view them is the same, but, but your, is your, because sometimes, so people sometimes make the point that that they feel that a lot of these blockchains really are controlled by, you know, one or, or some small number of entities. So is that what you're trying to say? That's one of the criticisms that I have and I would in, in many cases, lob at them. But I'm saying something completely different. I'm, I'm making an argument that very few people make. I mean, I mean, other people have actually made this. I add, you know, like Aaron Levy from, you know, he's also made the, I think, a very similar argument to a woman I'm making, which is that I don't believe the incentive structures support the thesis that a lot of people in DFI are making.

So when I talk about decentralized finance, I'm not talking about, like, rebuilding the New York Stock Exchange on top of a theory. or Solana. I don't think that that's going to work, right? Like, I think that it is very obvious to me that the marginal economic costs of doing that are not something that the rest of the economy is willing to pay in exchange for just like knowing that like that that they're safe from censorship. I'm saying you really have to think about like I think it is I think it is a good thing. And it's why I believe in Bitcoin that it is censorship resistant and that it's decentralized. But the way that it works is it works through, it works so well because of the adversarial dynamics in the network actually make it more secure. Those things are not obviously

true in a lot of these other smart contract chains. And so when I'm talking about decentralized finance, I'm talking about the full gamut of technological tools that we can use for decentralization. That includes things like decentralized identity that we're talking about, which by the way, is not just about identity. It also creates new avenues for decentralized service discovery and things like that. But there's also other avenues for decentralization.

There's technologies like IPFS, which is also not based on a blockchain. And I think that this is like kind of the message that myself and others have been trying to really push the conversation and is saying that like, blockchain is not the best decentralization tool in all cases. I think we all agree that decentralization is good,

that we want to see, decentralization of services, decentralization of finance, decentralization of governance. These are all good things. But I think that a lot of this industry is lost in the wilderness, trying to basically shove everything into these layer one smart contract chains. And I don't think that it's the technology that's the best fit for the job in many of these cases. And I think that's the conversation that I've been trying to have.

and I feel like people talk past each other here. Okay. Yeah. And then they keep saying, well, how are you going to do all these things in the Bitcoin blockchain? Well, I'm not. I'm not going to do those things on the Bitcoin blockchain. I'm going to do them in different ways using tools that are better fit for purpose.

Right. No, that makes sense. I mean, even people who work on things in Ethereum, they definitely also say not everything needs to go on chain. But so since you're actually discussing on this, I definitely want to ask you about how Tara recently decided about its decentralized stablecoin UST, partially with Bitcoin. And the creator or the co-founder of Terraform Labs, Doe Kwan, was recently on my podcast. And he was talking about how this will create a layer two on Bitcoin or a defy ecosystem on

Bitcoin. And I was wondering what you thought about that. I don't have the many developed thoughts on Tara. I'm going to take a mental note to dig in a little bit deeper. I've been very heads down on what I'm working on. But did you hear about how they're buying three billion dollars worth of Bitcoin for now and want to raise that up to $10 billion eventually to back their coin? I have not been able to help but notice in my Twitter timeline the people celebrating Tara's regular purchases of Bitcoin. Look, I believe that yes, I believe in Layer 2 solutions. I'm a big supporter of lightning. I don't think it is the only layer two solution.

I mean, the reality is, is that exchanges themselves are arguably layer two solutions. I don't think they're good ones. I think we're trying to disrupt that centralized model with TV decks. But yeah, like, yeah, of course. I mean, I think, yes, like, in order for the decentralized financial economy to emerge, we're going to have to create, like, higher levels of abstraction to deal with a whole modicum of problems that moving to a new system of money presents. But would you view what Tara is doing as competitive or complementary to what you're doing?

I think that what we're doing with TV Dex is pretty universally complementary to the entire ecosystem right now. I mean, I view our strategy as like a rising tide lifts all boats. I've said this before. Like, if our biggest competitors in the world, And we've talked to some of them, by the way, want to come and work with us on this and they want to use it and they want to provision liquidity and they want to build competitive products and services on it. I have said very consistently that we will work with them, that we're working in the open. And right now our model is to basically uplift the ecosystem and increase the viability of that ecosystem. And so I don't seek to like stake out sort of like some sort of like unfair competitive edge. So I view I view us as like working purely in the interest of the entire ecosystem,

which yes, we believe we'll benefit from that we'll be able to, you know, to build products and services that people will will pay for to support these systems. And our competitors may very well do the same. They may try to compete with those services. Maybe they'll be better than us. So I welcome all competition. I also, if somebody thinks that they have a better idea for accomplishing the problem that we're trying to solve, I certainly welcome their feedback or their efforts.

Competition is good. And then earlier when we were talking about how you don't feel that a blockchain is necessary for decentralizing things, in general, I think the reason that a lot of these other chains are using blockchain technology, in their networks is because, as I'm sure you're very well aware, they will launch their own token. And then the users of that protocol kind of feel this sense of ownership or alignment with that protocol. And frankly, oftentimes then get some share in the governance for that reason.

But that ends up becoming an incentive to those users and kind of brings those users into that ecosystem. So you don't feel that that would be a method that, TB decks would use to attract users or liquidity. I mean, famous or not, I don't know if this is famously, but I did notice in some of the writing about TB decks, you said that you would not be releasing a governance token, which is, again, another way that these protocols will often decentralize.

So, you know, what are your thoughts on kind of the usage of tokens to incentivize and attract users? Well, I mean, we will not create a government's token. it's also important to note that our protocol is a decentralized messaging framework that is ultimately doing like service discovery through the DID mechanism. So we like I would going back to my attempt to disentangle the conversation between decentralization and blockchain, I mean, TVDX is a decentralized technology that is not based on the blockchain. And that is a very deliberate decision that we've made because we don't think that a block we think a blockchain would make our technology more expensive.

We think that needlessly so, actually, we don't see any need to like burn, you know, these these transactions that were that we're mediating or the information that informs the the settlement of those transactions into a block. blockchain for eternity and to pay for block space and storage on that network to do it. We think that's a really, really bad unit economic model. And we think actually undermines the ability of a network like this to ultimately become even cheaper than the existing mainstream options for international remittance and settlement. So we very deliberately have sought to build a decentralized protocol that does not rely on a tokenized, like a governance token on a smart contract chain. I mean, like that like that like me like very not not as like I don't,

I don't, not as some sort of like flippant rejection of it, but like we don't think that that those technologies are fit to purpose here. So we we've designed this and I mean a governance token wouldn't make any sense. right? Like it wouldn't provide any security to our network. It would only make it more expensive to use it. I mean, as currently designed our network, our protocols should be as free to use as the web protocols we're using to have this conversation today. And so earlier in the conversation, you also mentioned that stable coins will also be a major focus. Are there any particular stable coins that you feel you would be more likely to use or are you thinking about launching one? We have publicly announced in conjunction with Coinbase and Circle a few weeks ago that we will be working with them on USDC. And so USDC will be one of the first stable coins that we invest in supporting. So that is public information.

So I can repeat that here. we are, since we do want to be very internationally focused, we are evaluating stablecoin options for other non-US currencies around the world. But I have nothing that I can speak to on that firmly right now. Okay. The last question is that the homepage of Spiral says Bitcoin is the best money. It should be used like it. And I get this question from Normies all the time.

They don't believe Bitcoin can be a currency or, you know, I would even say that in the Bitcoin world itself, a lot of people will talk about it being digital gold, which obviously, you know, nobody uses gold really as currency. So what do you say to people who think that Bitcoin cannot be a good currency or that it will not be used as a currency? I got this along. I mean, look, I mean, I think it's going to be about like showing and not telling. And I would say, check back in 10 years.

And I have a strong belief that the incentive structures that underline this technology and the emergence of technologies like lightning. And I'm not trying to avoid the, you know, italics criticisms of, you know, the pagan and peggat structure of lightning earlier. I don't think I have much time to. to dissect that. But like, I believe in layer two is sort of the main way to do payment. I believe that like I believe long term, the incentives towards adoption are well in Bitcoin's favor, particularly even more so. I think a lot of us can be very U.S. centric. But I look at countries

around the world, like I look at like Argentina and Venezuela. I look at Africa. where like El Salvador, obviously, where Bitcoin and lightning payments are actually seeing real mainstream use case as like a bulwark against, you know, runaway inflation, like oppressive control, you know, over, over money and banking and commerce. And I believe that the proving grounds of this technology are not even here in the United States, right? Like, I think, I think these technologies are being proven out, like, in real time in many developing countries around the world. And I think it's inevitable that Bitcoin is, I don't, I'm not going to, I actually am not going to make the argument that, like, Bitcoin will, will, will, will be the only currency in the future. I'm not, I know a lot of people believe that. I kind of am willing to withhold judgment on that future. but what I will say is I'm super confident that Bitcoin is going to be an important part of people's daily life in five to 10 years, one way or the other.

All right. Well, this has been super fun chatting. Where can people learn more about you and TBD? You can follow us at our TBD Twitter account where we are always giving updates and what we're doing. Sometimes we are a little bit lighthearted there and joke around a little bit. And also, we don't have our official website launched yet, but what I will say is that we are racing to get that set up. We have a team that's working really, really hard to get our website put together where we're going to actually be able to bring together all these things that we're currently working on. So look up for that and we will definitely be announcing. that on our Twitter feed. So I was, I would see our Twitter account is probably the best place to follow this right now. Perfect. All right. Well, thank you so much for coming on Unchained. Thank you, Laura.

This is fun. Thanks so much for joining us today. To learn more about Mike, Block, and TBD, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Youen, Daniel Nuss, Mark Werduck, Shoshank, and CLK transcription. Thanks for listening.