Unchained - Xapo's Wences Casares on How Bitcoin Makes a Fairer World

Episode Date: February 6, 2018

Love Unchained? Please take this extremely brief survey to help us find more sponsors: https://survey.libsyn.com/unchained Growing up in Argentina, Wences Casares saw his family lose all their money three times due to actions by the government. The so-called "patient zero" of Bitcoin in Silicon Valley explains why he believes that experience predisposed him to seeing the potential in Bitcoin earlier than most people, why it's so hard to explain Bitcoin to Americans and why the company he founded, Xapo, isn't just a Bitcoin vault and wallet company but his best effort at helping to ensure that Bitcoin succeeds. He talks about why he isn't scared of all the new competitors to his service, including Coinbase Custody, why Xapo hasn't branched out into any other crypto assets, and why he believes there's a more than 50% chance that Bitcoin is worth $1 million in five to ten years. Additionally, he still believes the attempt to accommodate more transactions on the Bitcoin blockchain with the SegWit2x fork, which he backed, was wrong -- even though the fees after its failure skyrocketed to as high as $60. Plus -- he reveals what it would look like if Bitcoin became a global standard of value, and why that vision doesn't threaten governments. Xapo: https://xapo.com/ Wences's Facebook Live with Dan Schulman of PayPal: https://www.facebook.com/DanSchulmanPayPal/videos/1419329821528449/ 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, an independent journalist covering all things crypto. If you love Unchained, be sure to let the world know with a review on Apple Podcasts. Those reviews help new listeners find out about the show. Also, spread the word on Facebook, Twitter, Slack, Telegram, and wherever you discuss crypto. And don't forget to follow me on Twitter. 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. Before we get started today, I have three big announcements. first, you may have noticed I did not say I was a senior editor at Forbes. I've decided to step down to focus on what is my second big announcement, the fact that I'm taking Unchained Weekly. This was my number one most requested, quote unquote, improvement to the show, and I'm excited to finally be able to meet that demand. The third announcement is that I'm launching a new podcast. It will feature the same marquee names and crypto, but in a new format and with a different focus.

The first episode drops soon. I'll post a reminder here in the Unchained Feed so you can go check it out and subscribe. If you or your company is interested in sponsoring either show, please send an email to Laura Shin Podcast at gmail.com. That's L-A-U-R-A-S-H-I-N podcast at gmail.com. Today's guest is Wencesis Casares, CEO of Bitcoin Vault and wallet company Zappo. Welcome, Wences. Thank you, Laura, for having me in the show.

You're a serial entrepreneur. who founded Argentina's first internet service provider and Latin America's first online brokerage firm and you serve on the board of PayPal, which isn't a small company. And yet you've often said you think Bitcoin will be bigger than the internet. Why?

Well, I can imagine a world in which if Bitcoin succeeds for a few billion people, if you ask them whether they prefer that you take away their internet, which is access to information, or their Bitcoin. which is access to their money, that they rather have you take away their internet, but not their Bitcoin.

And I've also heard you say that you believe the unbanked are, what number is that? There's a billion, 1.2 billion people who have a checking account and a debit card or a credit card the way you and I understand those products. Everybody else has much, much more restricted access to very basic. banking services. They may have a bank account at the post office, that it only lets you make deposits and some withdrawals, but not really make payments, much less use it online, etc. And you said that you've understood, or that you understood Bitcoin's potential early because you saw your family lose all its money three times while you were growing up due to actions by the central bank. What happened at those times? I grew up in Patagonia and southern Argentina

and growing up I saw my family lose everything three times. Every time it was because of something that the government and or the banks, the first time that I have a memory of that, there was a massive hyperinflation where prices were changing constantly, every day, literally, and sometimes several times a day. And how old were you? When that was happening, I was 15, that was in 1989. And what do you mean when you say you saw the prices change every day?

I remember my mom came to take us out of school in the middle of the morning. She'd never done that before, me and my two sisters. And she was carrying two plastic bags full of cash. And that was she had been paid her salary. She was a receptionist at the government bureau. And with a modest salary. and that modest salary took two plastic bags full of cash. And she took us to the supermarket,

and she gave us each an aisle with a list of things. And we met at the cashier. And when there was some money left, after all that, she sent us back to get more stuff to spend all the money. And when one of my sisters asked her, why don't we save some money for tomorrow, my mom explained that tomorrow it was not going to be worth as much. And at the time there were no bar codes or computer systems as we see them today.

So there was one person who worked for the supermarket whose job was to change the prices. And our job was to go in front of that person. The person went through all the aisles, putting the new prices. And when it finished, it started again. So you literally saw the prices change if you follow this person. Our job was to be ahead of that person. It's crazy, but I saw it happen. Wow.

Brutal. Wow. That is really crazy. So you also said that you saw these times when, you know, when I guess money was affected in Argentina, that you saw it change the conversations your parents had or you saw the people around you becoming desperate. What did you see people saying and doing? And what do you feel was the lesson that you learned after those experiences?

My memory of those events is not really an economic or even a financial measurement. memory. I was a kid. So my, what I remember is sort of quite emotional and what I remember is the discussions my parents had because of what was going on and and their, their frustration and their anxiety and how everybody else around us was having the same issues. And there was like a collective state of panic and distrust. Nobody trusted anyone with anything. It felt like the very basic sort of fabric that keeps society together was breaking apart and it took a long time, something that broke very quickly, took a very long time to rebuild. I have a very clear memory of how this impacted wars, the people who didn't have any way

to protect themselves from life. Some people who are better off were able to. to either buy property to keep the money safe in the form of property or even have a bank account abroad or other things like that. But most people who don't have much money didn't have any of those options and those were the ones who were hit the hardest. And as you know, a lot of Bitcoin believers, at least, especially in the early days, were big libertarians.

But I don't know if I've ever really heard that kind of rhetoric from you. but I would imagine that these experiences would give you those kinds of beliefs, did it? I have a lot of respect for libertarians and sympathy for a lot of those ideas. I am more pragmatic than I'm a libertarian, and it's hard for me to imagine a world without a government. Maybe it's my limited imagination, but I do think that there is an important role for government, and I believe that we're better off with the right amount of government. and I would like to see less government, but the libertarian idea of absolutely no government doesn't,

it's hard for me. I wouldn't consider myself a libertarian that way. It's true that a lot of the libertarians ideas are appealing and interesting, and I have a lot of respect for them. But I do think that there is a place for government and that it's hard for us to live without one. And how did you first learn about Bitcoin? I first learned about Bitcoin,

because a friend of mine from Argentina suggested that I sent money using Bitcoin in 2011 I need a group of childhood friends were contributing to a common project and I was already living in California and at the time Argentina had banned all forms of sending money and you couldn't paypal wasn't working in Argentina Western Union wasn't working

and it was very complicated you had to send the money to the central bank and then there was a way to claim it from the central bank but it was very, very hard for normal people to do. Wait, why did they ban things like PayPal? Because this is very recent, Laura, 2011. Argentina had currency controls. So you couldn't, the peso wasn't freely convertible, and you couldn't send money.

And they were all these controls for you not to be able to send money. The only one who would buy and sell pesos at it was the central bank. And they had a control of, you know, every dollar that comes in and out of the country. So anyway, this friend of mine said, hey, why don't you, I was trying to figure out if my sister could give my friends the money in Argentina and then I could somehow pay my sister some other time. And one of my friends said, hey, why don't you look at Bitcoin?

And I said, what's Bitcoin? And this is a friend who is not very much into technology, not very much into finance. So I was skeptical. And I looked into it. I found someone who was willing to sell me some Bitcoin. in person. I found this person in Craiglist. We met at a cafe in Palo Alto.

I brought $2,000 in cash, and we did a transaction with our phones, with a QR code. I gave him the $2,000. He gave me $2,000 worth of Bitcoin. When I was walking back to my office in Palo Alto, I sent the Bitcoin to my friend in Argentina. And then sometime later that day, I was my desk and my friend sent me an email and saying, thank you. I got the Bitcoin, I already sold them.

I have the pesos in my hand. And it was like, wow, what did just happen? And that's when I started trying to learn as much as I could about. And so I just wonder, you know, we were talking about your personal story. And as everybody says, you were Bitcoin's Patient Zero in Silicon Valley. And I just wonder, was there anything about your personal story? you know, with the way that you saw money handled in Argentina that predisposed you to seeing the potential in Bitcoin?

Yeah, absolutely. I don't think I would have understood it or believed in it if it weren't for the things I saw growing up in Argentina. To me, it was very clear and always frustrating that the governments take advantage of the people who are weakest, if you will. And I always thought that technology would change that, but forever it had not. And when I saw Bitcoin, it was the first time that I said, oh, my God, maybe this is the answer. Maybe this has all the qualities to be able to let people protect themselves from what governments and sometimes banks do.

So, yes, I think it would have been hard for me to understand that if I had not grown up in Argentina and seen the things I've seen. Even though it wasn't an immediate thing, it took me about six months to go from very skeptical to, all in into Bitcoin and a lot of a lot of reading, a lot of playing around with the technology, with a with a client mining, meeting people, learning from them. It was quite a journey for me. And whenever I'm telling people about Bitcoin for the first time, I try to remember that it took me quite a long time to get my arms around it too. Well, yeah, so I was wondering, going back to how you did get so many other people in Silicon Valley interested in it.

You know, obviously, I'm sure many of them had grown up in the U.S. where obviously the financial system is quite different from the way it works in Argentina. So how did you get them to understand the import of it? In general, did you find it easy or difficult for them to grasp? I find that it's very hard to explain Bitcoin in the U.S. is probably the hardest country, just like Argentina, maybe one of the easiest. the U.S. may be one of the hardest. And I think it makes sense because when you talk about money to an American,

it's a little bit like talking about water to a fish. I'm sure the fish don't even know that water exists is invisible to them. They don't know what you're talking about. Money has always worked for Americans who has worked for them and for their parents and their grandparents. They always use the same form of money. In Argentina, each generation has discarded some form of currency, at least once and probably more than once, right?

But imagine that for some crisis you get rid of the dollar and you have a new currency, a new American currency that it's called something different but not dollar. It sort of just changes significantly how you see money. You don't take it as this given instrument that works, but it makes you question a lot of things that if money has always worked for you, you'll never question. So I went nowhere from 2011 to 2013. I really didn't convince anybody. I tried.

I tried super hard. People were making fun of me. And they were saying, oh, no, here comes once. He's going to start talking about Bitcoin again. And I think, well, time helped, but quite frankly, the price action helped a lot, right? When the Bitcoin price began to move a lot in 2013, people began to pay attention. And there was a little bit of sort of chicken and egg there at a conference with a lot of important people from Silicon Valley were all present. I started circulating Bitcoin from phone to

phone just to show that I didn't know any other way you could do that, just move a large amount of money so easily. Yeah, well, I have spoken about this moment before on the podcast because it's a scene in Nathaniel Popper's book and it's pretty striking, at least for me, being a reporter who covers finance, because the amount that you guys passed around from phone to phone was quarter of a million dollars. So for someone reading that, it's like, wow, like, I did it for effect, right? Just for show, just to say, wow, show me any other way you know in which we could be doing this. And we were in a circular table with about 10 or 12 people all around. And he went all around the table from phone to phone until it came back to me. And that happened the first night

at this conference. And all the people, it caused quite an impression. The people, the, it caused quite an impression. people at that table, but then they began to spread it, and you could see the price move as it spread through this conference. And I think for me that was a moment where something tipped and people were a lot more receptive. And then they started buying. They started their buying, start moving the price, and then it becomes sort of a virtual circle. And what year was that? That was 2000, either the end of 2012 or 13, or the beginning of 13. can remember. Okay.

Okay. Yeah, 2013 was the year when started moving up. So out of all the businesses you could have done with Bitcoin, why did you choose to build Zopo with, you know, the vaults, the wallet, the debit card? I, once I understood Bitcoin, I became very, very optimistic that if Bitcoin succeeds, it may be the biggest leap forward we've ever seen in the democracy. democratization of money and it will make for a much, much more equal and fair world in my opinion. But the fact that it succeeds is not a given. It could still fail. So I decided that I want to

spend the rest of my career helping Bitcoin succeed. I don't see this as a job where I am running a company to make the company grow and make money. That's not what motivates me. What motivates me is when I am old and hopefully my grandkids come and ask me, hey grandpa, what did you do with your career? I want to be able to say, you know what? I was part of a large group of people who helped Bitcoin succeed. And for me, the best way to help it succeed, I see Sappo as a platform to help Bitcoin succeed.

And with Zappo, we focus on what we see as the biggest bottlenecks to success, which right now, in our opinion, our security, make it so it's very safe for you to hold Bitcoin, to buy Bitcoin, receive, send and hold Bitcoin. And ease of access. Today there's a lot of friction between someone deciding that they want to own Bitcoin and actually getting those Bitcoin, right? And it's different challenges in each country.

How do you turn cash into Bitcoin in India? It's very different than in the US and it's very different than in Turkey. is very country-specific or with local bank transfer, et cetera. So subbo is an instrument to help Bitcoin succeed, where we focus on what we see as the biggest friction for Bitcoin to become what hopefully will be the most widely held asset in the history of humanity. And when you were talking about how converting the bitcoins to local currency is different in different countries like Turkey and in India.

Do you have to, I guess, get special banking relationships in each of those countries for people to use your services there? It depends on each country. There are countries where you can do it without a banking relationship. It depends on the current infrastructure of the country. There are countries that have very well-developed cash collection networks. cash collection and cash disbursement networks, and those networks already are used to doing cash collection or disbursement for other digital uses or for other type of spend that happens worldwide.

In those cases, you can work with them without any banking relationship. And in some other countries, the most cash collection and disbursement networks with the most capillarity are the banking networks, and in those countries you need. to have a banking partner. But it's different in each country. It's very, very different in each country, very country specific. 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.

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Take control of your well-being and book an assessment today. MedCan. Live well for life. Visit medcan.com slash moments to get started. And you also told me a few years ago that 96% of your customers account for 4% of the dollar value of the transactions and that 4% of your customers account for 96% of the dollar value transactions or some some ratio like that are those ratios still the same today and if so why does it break out like that we serve a lot of institutions who want to hold bitcoin no the the some of them make it public that we are their custodian like the the public instruments to hold

Bitcoin in the U.S. like GBTC, GBT in the U.S. Or XBT in Europe or CBT in Canada, they all have to make their custodian public and they all use Sapo as the custodian of their Bitcoin. We have many other customers like them who have a very large amount of Bitcoin that may represent anywhere from $10, $20, $50 million

and sometimes in excess of $200 million. dollars. So those customers are a very small percentage of our customers, but they represent a lot of the bitcoins that we have in custody. And that's why it's so concentrated, mostly because of these institutional customers who have very, very large amounts. So imagine how many, if we have some fund who has $200 million in Bitcoin, that represents a couple million customers in Asia, right? So that's why it's so concentrated. Okay. And for the Smaller customers, like the ones in Asia that you mentioned, what are they using Zappo's services for? Mostly people are using us as a way to buy Bitcoin and hold Bitcoin.

We are not seeing a lot of Bitcoin payment activity. At the retail level and small transactions, most of the payment that we see is cross-border where someone from one country is paying someone else in a different country. part of that. It's hard for us to know exactly what they are paying for. Some of that could be remittances, but a lot of that is just cross-border goods and services. And I believe a while back, you also said you thought people were using them for mobile phone payments, but has that changed now that the fees have risen? Yes, we've seen a lot of payment use cases slow down or almost disappear because of the higher fees.

We have a lot of transactions that happen within Sapo, right? Because the Sapo to Sapo transactions don't need to go through the blockchain, so they can happen in real time and for free. And so today we see about 20 Sapo to Sapo transactions for every transaction that we run through the blockchain. Oh, wow. Okay. And let's talk about your storage solution. How do you store the Bitcoins that your customers entrust to you? We keep 97% of all the bitcoins we have in custody in deep cold storage,

which means that it sits on servers that have never been online and will never be online that are inside a vault, deep underground in different types of bankers. We have five bankers globally. We make public our main banker of all location in Switzerland, but we have other bankers in other continents. and basically to take bitcoins out of that cold storage. We work with a scheming which each Bitcoin address that we control has five private keys, of which three are needed to move the kids.

We did it that way so we can lose two locations to natural disaster or theft and still have the ability to move the coins to a safe location or a safe address, if for whatever reason we thought that that address wasn't safe anymore. So we have five private keys for each address and we keep each private key in a different location. We run a process daily where we send transactions to be processed, basically, withdraws from the vault. And we need to get at least three of those signatures back

to be able to move the coins. It's a very manual process. Well, I was just wondering how you prevent employees from stealing customers' Bitcoins. The process is designed, assuming that you could have not only one, but a number of rogue employees that could collude to try to get Bitcoins. So all the processes are decided. So even if you have a bad actor or a number of bad actors that are coordinating, they cannot take Bitcoins out, right? So not one person can access the customers' Bitcoin by themselves.

Do you worry about Zapo being undercut by some new competitors that are coming online? Like there's a new custody solution coming out from Coinbase, Coinbase custody, and at Ledger, the hardware wallet is coming out with Ledger Enterprise. there's actually another one in stealth mode. Do you worry about being undercut by these competitors? Not really. I think that at this stage, it is a very nascent industry.

And we need a lot more people doing what we're doing to really make sure that the entire world is using Bitcoin. I would worry if we were the only ones, because I think Bitcoin would have a very small chance of succeeding if there's only one decent custody solution. So I think we need a lot more. I used to run an online bank in the year 2000 in Europe. And we were the first one in several European markets.

And we were spending a lot of advertising dollars on TV, basically to get people to have an online bank account that paid a lot of interest. And the money that we didn't have to spend in branches, we spend it in advertising and paying more interest. And this worked extremely well, and because it worked really well, we had a lot of large banks copy us. And our first reaction was like, oh, my God, this is going to destroy us. We're going to share this pie with a lot more players,

very, very aggressive, all of them. They were all spending more than we were spending on TV advertising. But our numbers kept getting bigger every week. And it was like hard to understand what's happening. How can it be that we have one new competitor, two new competitors, each one's spending more than we're spending. Now three competitors. Now all of them spending each one of them more than we were spending. And the numbers keep growing.

And what happened in that case is that this was a new category. And more players advertising it heavily created a sense of sort of created a category. It made the market realize that this was an option to have an online bank account where you put your savings because you have better return, et cetera. And I feel the same way with Bitcoin. I think it would be very hard to make this market happen if we were by ourselves or if any company was by themselves. It takes a very large ecosystem of trustworthy companies to make something like this happen. And why not offer your custody solution for more than just Bitcoin? Right now, I don't have the conviction I have for Bitcoin, I haven't developed it for any other crypto asset.

And I can explain to any of our customers why I think it's a good idea to own a little bit of Bitcoin. But very often I can't explain why I think it's a good idea to own something else. So I just don't want to be, I don't want to be responsible for making people make bad financial decisions. If at some point that changes, there is a crypto asset that seems that has the same risk, reward, and potential that Bitcoin has. I'd be happy to serve it. But right now, I do not feel like that about any other crypto asset. We're going to talk about the failed Segwit 2X hard fork and Bitcoin Cash. But first, I'd like to take a quick break to tell you about our fabulous sponsor, OnRamp.

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If you or your company is interested in sponsoring Unchained, please send an email to Laura Shin Podcast at gmail.com. That's L-A-U-R-A-S-H-I-N podcast at gmail.com. I'm talking with Wencesis Casaris, the CEO and founder of Zapo. Wences, you supported the Segwit 2X Hard Fork, and when that failed, you tweeted, quote, Bitcoin's most important quality is it censorship-resistant, the rest will follow. I got too impatient with 2x. Pictures also took too long to download in the early internet. Bitcoin will eventually be able to process more payments.

The day you tweeted that, I actually ran the numbers, the transaction fees were on average $10.37. And within a few weeks, the Bitcoin price skyrocketed, rising to nearly $20,000. And with all that activity in the blockchain, the average transaction fees also skyrocketed. and they rose to as high as $59.70 on December 22nd. Since then, they've come down to about $8.

Do you think it was a mistake to not go through with a Segma 2x hard fork? Do you think that your side was proven right, that the hard fork was needed at that time? No, I think that our side was proven wrong in the way we wanted to do that block increase. I think that it may be a good idea. I still think that it may be a good idea to increase the block size. So we give more time to the second layer solutions to be market ready.

But I think that the way we were trying to do it was the wrong way to go about it. And for me, the biggest learning from the failure to do the 2X upgrade is that protocols have a very different way of evolving than companies do. And even if we have a very good intuition for the timing of companies and for the cadence of companies and to get a sense if something has traction or doesn't have traction in the context of a company, it's very, very different from having the same intuitions or correct intuitions for a protocol. If you look at technology overall and you look at the companies have been the dominant companies in technology over the years, It used to be that Intel was a dominant company. We had a time where Sand and Oracle were the dominant companies.

There was another many years in which Microsoft was a dominant company. Another one was Google was a dominant company. Now we have this landscaping with Facebook, Apple, Google, Amazon are very dominant. But it's hard to find the company that has had that dominant for more than 10 years. It's quite fluid and change is very dynamic, very dynamic. very quickly. When you look at the same landscape for protocols, it's completely different. We started using Ethernet Protocol about 40 years ago or 30-something years ago,

and still, if you have cables at home, it would be hard to find something different than Ethernet. And same thing for TCPIP, it's a protocol that powers the Internet or HTTP for the web or SMTP for emails. Once these protocols get established, they stay there forever. they don't change the way companies do and they and and having to if you

as a journalist Laura had to report on the evolution of Ethernet or SMTP it would have been a very boring job for a report to say because it took a long time and every day there's a little bit more of everything

but nothing really great to report on oh there's more users there's a little bit more capacity there's a bit more usage, what have you. And I think that in Bitcoin, it's an Uber protocol. It's a protocol. It's not a company. And it's developing more like those protocols than a company. And if I am impatient, that's my problem. That's not Bitcoin's problem. Bitcoin has all the patience in the world. It doesn't have a board. It doesn't have capital. It doesn't have earnings. It has all the

patients in the world. And if you are impatient, that's your problem, not the protocol's problem. And that was for me the biggest lesson from the way we tried to do the block increase. So I'm not concerned about the level of fees today. I think that eventually Bitcoin will be able to process all the transactions that people may want to do there, and they will be able to do them very quickly and very cheaply. It just may take a little while, just like it took a little while for the Internet to power Netflix. there was for many years in which that seemed impossible, but it would have been wrong to bet against the internet because of that.

So you've talked about how impactful you think Bitcoin will be in the developing world, but now with fees ranging from $8 to $60, what kind of impact do you think Bitcoin will have there? I think this doesn't change things, right? I was never pitching Bitcoin for payment. I always said that I think that the first, stage of Bitcoin is to get established as a store of value. And once hundreds of millions of people own Bitcoin as a store of value and more people own Bitcoin than ever own gold or dollars, it will naturally turn into an important payment mechanism. But this first stage, which may take another five years at least and maybe a decade, it's all about a store of value. And you have never heard me pitch otherwise. So I,

I'm as concerned with fees today as I was four years ago, which is not really care about them now. And by the time it becomes a payment mechanism, the fees will not be a problem. Well, when it comes to being a store of value, you've often made that pitch because it's scarce and there will never be more than 21 million bitcoins. But how well does that argument hold up now that we have Bitcoin Cash, Ether, Zcash, Manero, all these other crypto assets, do you still believe? And you've said this before that you believe Bitcoin will someday or could someday be worth $1 million. Do you still believe that?

I still believe that Bitcoin, that there's a higher than 50% chance that Bitcoin will be worth more than a million dollars in five to 10 years. And I think that as you know, there will never be more than 21 million Bitcoin. And Bitcoin cash and all the other 800 cryptocurrencies do not change. that I think that we have to figure out a lot. We are all learning and there are a lot of things that we have to figure out. But in my opinion, the market will eventually figure out that there's, that Bitcoin is in a league of its own when it comes to how much we can trust it and the censorship persistence and the robustness of the protocol overall.

And I think we are going through a period in which we're all learning and doing a little bit of discovery of new things. And not unlike what happened with the dot-com boom, where there were a lot of assets that were overvalued and hidden within those assets, there were gems that were undervalued. But I think we're seeing the same process here. Well, let's talk about Bitcoin Cash. Even some of the diehard Bitcoin Core supporters admit that Bitcoin Cash is now trying to fulfill the original vision of the Bitcoin.

white paper, which is the version of Bitcoin that you originally fell in love with. So why don't you support Bitcoin Cash? I would put it another way, which is why should I support it? If you tell me, well, because you want to do cheaper transactions, I would say, well, I'd rather use Litecoin than Bitcoin Cash. It's cheaper. And you say, no, but faster transactions, again, I would use Litecoin. It's faster than Bitcoin Cash. So with protocols, it doesn't really matter which one is the best protocol. It only matters. which one is the most in use. And in the case of Bitcoin, in particular, and cryptocurrencies,

I would say the only things that matter are the hashing power, number one, the number of users, number two, and the number of transactions, number three. And in all of those numbers, Bitcoin is in a league of its own, right? And so I could make the pitch that I have a protocol that competes with email that is much better than the email protocol, because the email protocol doesn't handle spam very well and you can approve the identity of the sender and it's pretty poor to handle attachments and video and voice, etc.

So it's not hard to come up with a better email protocol. It's quite easy, actually. It's just hard to get people to use it. And same thing with this. It doesn't really matter. It's hard for me to... I think it's a mistake to engage or follow a currency it just because it may have temporarily better functionality.

A lot of people made that mistake with the Internet, where they bet against the Internet and four other protocols because supposedly the Internet was never going to be good enough for video or good enough for voice or good enough for a number of things. And they were wrong, and I think the same is true with Bitcoin. And what about Ethereum, you know, in terms of the different kind of characteristics that you were saying were important to look at?

I mean, I think Ethereum would score well on those. You know, there's definitely an extremely vibrant developer ecosystem. Obviously, there's a lot of users. And we've already seen this past year just how quickly things can take off in Ethereum, such as, you know, with additional coin offerings and the crypto kitties. So definitely there seems to be a lot of activity on that blockchain. What do you think about Ethereum? I think it's maybe the most interesting thing going on in the space outside of Bitcoin.

I think that there are a number of companies. is developing the technology. So all of that functionality that we learn through Ethereum, we eventually be able to run on top of the Bitcoin blockchain. Just like we forget now, but at the beginning of the internet, there were people who were betting that we were going to use the internet only for low latency, low bandwidth applications, like the web and email.

But for high bandwidth applications, we were going to use X-25, and for low-latency applications, we were going to use frame relay, which is the equivalent of saying we're going to have one network for the web, another one for Skype, another one for Netflix. And that, even though it make a lot of technical sense, it didn't happen that way. There's only one transport layer that matters in the world today,

and that's TCPIP or the Internet, everything, whether it's voice, video, data, any kind if it's moving, it's most likely moving on top of this IP or the internet. I think the same is true for value. If something settles in any form of value, eventually it will have Bitcoin

underneath and it may happen in higher layers, but it's most likely that it will be one prevailing blockchain for value. There may be other blockchains for things that do not have to do with value. But today, Bitcoin is in a league of its own in terms of being something that is really trustless

and it's really uncensurable and robust. So I think we will learn a lot from other cryptocurrencies, including Ethereum, but a lot of the best lessons will be implemented on top of Bitcoin. And why do you think it will happen that way, rather than Ethereum just continuing to grow because it already has so much traction?

Bitcoin makes in a week more users than Ethereum made it in its lifetime, right? Actually, more users than all of the other cryptocurrencies made in a lifetime. Ethereum is still controlled by a person, they've already shown that they can change the blockchain by just saying so that that is very, very, very far from Bitcoin. Where the only blockchain that has a combination of hashing power and that is distributed enough where there's nobody really who can change it or control it. And that's at the core of any blockchain.

How is a blockchain different from a database? It's because nobody can control it. the only one who is really not controllable or uncensored at scale today is Bitcoin. It may be that you're right, Laura, and the future is not written. I'm just giving you my opinion. It may be that it plays in a different way. I just don't see it. It's hard from where I sit to believe that.

Yeah, and I don't want anyone to think that the question that I asked is my opinion or my view that it will happen that way when I am looking at, how things might go going forward. I can see it going in your, you know, the way that you outlined. However, I definitely cannot ignore how much traction Ethereum has. And so I sometimes wonder, oh, is this, you know, going to eclipse Bitcoin? You know, I don't have a particular opinion about how it's going to go, but I could see it happening either way.

At the very beginning of the internet, there were non-internet services. like America Online and CompuServe, who made very similar arguments. It's like, look, the Internet is cute, but it's very slow and complicated. And so just use CompuServe or just use America Online, don't use the Internet. And we will give you graphs, and we have these cute sounds and even some video and all these things that the Internet cannot do, right?

And it's true, and for a period of time, they were important. But Open always wins in technology. and in this case open and censorable and completely trustless. So, yeah, there may be a time where there's a place for that. It's hard to imagine a world in which we need multiple protocols for the same thing. Okay. Well, one other thing I wanted to ask you about was you, I think in your video with Dan Shelman of PayPal, you outlined a vision where Bitcoin is used as,

the global standard for foreign exchange. Can you describe that vision and then also describe how we got to that point? I think that if Bitcoin succeeds, it will become a global standard of value and a global standard of settlement. We had a global standard of value for 5,000 years and we haven't had one for about 500 years. For the last 500 years, the global standard of value have been the currency of the dominant power, The first one was the Portuguese for about 100 years, or their currency was used globally.

Then after that, the Spanish, then the Dutch, then the French, and now the American dollar for about 100 years. Before that, these 500 years, gold was the value. And gold is the one that resembles most Bitcoin in that it wasn't controlled by any one country, and it was truly apolitical, the way Bitcoin is apolitical. We take it for granted today that if we want to make a comparison of, like I said in that talk, say if I want to compare the square footage of the first cabin my grandfather had in Patagonia in 1940

with the square footage of some grandparent of yours, Laura, who came to the US and had a cabin or a house somewhere, it's very easy to compare the square footage, right? Your father had a house that was 1,500 square foot, and my grandfather had one that was 1,000 square foot. And when we want to compare how much they paid for it, even if we have access to the exact amount they paid, we have to adjust that number to compare them. And we can adjust them to inflation,

or in inflation, we have to choose inflation of probably the currency that we're using. or we can turn it into some other into gold at the time. There are many different ways we can adjust it and in choosing the way we are going to use is somewhat subjective and therefore the final number is somewhat subjective. With the result being that the comparison that we are doing of value is a very subjective comparison

and it shouldn't be. It should be as objective as comparing square footage. And today we can't do that. And I think a world in which Bitcoin succeeds, it's one in which Bitcoin becomes this non-political and objective measure of value. And when you ask for things that matter

globally, like the price of a currency, that currencies are priced in Bitcoin, and commodities are priced in Bitcoin, and an international trade is done in Bitcoin. It doesn't mean that any currency in the world disappears. It just means that the metacurrency that connects all of

those currencies is now a non-political currency with non-political value and with non-political value and with non-political settlement with absolutely anyone can settle in that currency on a Sunday at 2 a.m. between with anyone right and that that that's new that has never happened before and it would be very powerful yeah but a lot is going to have to happen for us to get there because right now bitcoin the value of bitcoin at least in us dollars is extremely volatile so I would not imagine that would happen I don't know I mean you and I are roughly the same age I think it

would be like near the end of our lifetimes or something. I just, I mean, how do you think we're going to get there? Don't you think it will take quite a long time? Yes, I think it will take a long time. For Bitcoin to fulfill that function, it needs to be worth trillions of dollars. So that's why I think it'll be worth more than a million dollars a coin. And the only way to get from $10,000 or whatever Bitcoin is worth to a million dollars is with a, the only safe way is with this kind of volatility, right? I think there is no safe way to get there in a smooth way, because volatility is what keeps people from putting money they shouldn't put into Bitcoin. And the worst thing that could happen to Bitcoin is that people put money they shouldn't put in there. So I imagine

many years, perhaps decades, which Bitcoin keeps going up with this monstrous volatility, and then once it gets to occupy that place, it slowly has less and less volatility. But I think it's the only, sort of a copy paste of what we've seen for the last nine years. You copy past it two, three more times, 10, 20, 30 more years and you get there. It's a very boring way to get there, but it's the best way to get there. Well, maybe for journalists, it's not a boring way. At least the journalist you write about price movement. Well, you know, on the way there, though, don't you think that it would start to pose a threat to central banks and governments?

No, I don't think so. I think that the one country that would lose the most, which is the US, because it would replace the dollar as the global reserve currency. But at the same time, the US is the country that is better positioned to take advantage of the pros of Bitcoin. It's probably the country that can take the most, just like it took the most upside out of the Internet. net. The US did. It's likely to take the most upside out of Bitcoin. So net net is not clear for me that it will be negative. I think that the US can still come out ahead. And when you look at policymakers around the world, I haven't seen one policymaker believe that their role is to prevent Bitcoin from becoming a standard. So their currency doesn't suffer. It's just like it didn't, it didn't have. happened with gold before I don't see I don't see within governments a person or an office that is that has the responsibility from this not happening on the contrary when you look at what the financial regulators are doing and law enforcement they are all advancing in the same direction which is they all start a little

scared about Bitcoin as they learn they learn how how it can be regulated how how how for the economy, it's better to have money in Bitcoin than it is in cash, et cetera, et cetera. So all of the progress we've seen in regards to regulators and policymakers in the last five years has been a very positive one. And I expect more progress in the same direction, not the opposite direction. But what about in China, where we've seen outright bans on Bitcoin exchanges? China could have made it illegal to own Bitcoin, and they have not chosen to do that, right? It is legal for Chinese consumers, Chinese individuals to own Bitcoin. I think that the Chinese government had a concern about the free trading, and they stopped that.

And I think that's a sensible policy. They also have a concern about anonymous trading, so they want to make sure that the people who are trading have a proper KYC and AML just like you would in any bank. I think those policies are very sensible, but none of those policies. policies ever went against Bitcoin, right, or against in a country that decides what websites you can see and you cannot see and does that quite effectively. It would be very feasible for them to say Bitcoin is illegal and they haven't chosen to do that. And what about in Argentina? How is Bitcoin used there today? And has it been used, hasn't it been used to sort of circumvent governmental controls? Yes, it has been used to send money to Argentina or get

money out of Argentina when it was complicated to do that. I think that today, Bitcoin is more important for Argentina than Argentina is for Bitcoin, meaning if you are sitting in Argentina, either at the bank or at the government bureau, the Bitcoin activity matters to you because it's non-trivial. But if you're sitting in the Bitcoin ecosystem, all of the Argentina volume is sort of not material for Bitcoin. So you've been thinking about or working with Bitcoin for seven years now. What lessons do you feel you've learned over that time that you keep in mind as an entrepreneur as the space continues to develop? I would say the most important lesson is the one I told you before, that Bitcoin is a protocol,

it's not a company, and it has the timing and the rhythms and the needs of a protocol, which are very different from a company. I would say that's the most important lesson that I summarizing that tweet that you read, which is, I think, that Bitcoin most important quality is its censorship resistance and that everything else will follow from that. Great. Well, I've been speaking with Wences Casares. It's been fantastic having you on as a guest. Where can people get in touch with you or see your work?

Twitter at Wences. Great. Okay. Well, thanks so much for coming on the show. Thank you, Laura. Thank you for having me. Thanks so much for joining us today. To learn more about Wences, check out the show notes contained inside the episode in your podcast. podcast app. Also, be sure to follow me on Twitter at Laura Shin. New episodes at Unchained come out every single 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 Zelby and Fractal Recording. Thanks for listening.