Peter Smith, the CEO of Blockchain, discusses how the company got started, why the company is focused on users owning their own private keys and how that is what enables all the most interesting applications of blockchain technology. He talks about the full range of customers and markets they serve, their lending business and their dark pool. We also discuss regulation, SegWit, nation-states getting involved in crypto and why Blockchain plans to go public.

Read more on Forbes.com: http://www.forbes.com/sites/laurashin/2019/06/04/everything-interesting-in-crypto-relies-on-having-a-private-key/

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Episode links:

Peter Smith: https://twitter.com/OneMorePeter

Blockchain: https://www.blockchain.com

Wired article on the short period when cofounder Ben Reeves worked with Brian Armstrong: https://www.wired.com/2014/03/what-is-bitcoin/

Dovey Wan tweet on manipulative trade on Bitstamp/Bitmex: https://twitter.com/DoveyWan/status/1129246233917382656

Fortune article on Blockchain launching an exchange: http://fortune.com/2018/02/15/blockchain-google-coinbase/

SEC guidance mentioning airdrops: https://www.sec.gov/files/dlt-framework.pdf

FinCen guidance mentioning hosted vs. unheated wallets: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

Blockchain’s Airdrop of XLM: https://www.theblockcrypto.com/2018/11/06/stellar-is-airdropping-125-million-to-blockchain-wallet-users/

The Wall Street exodus from crypto: https://www.crowdfundinsider.com/2019/01/143834-is-the-exodus-from-wall-street-to-crypto-reversing-jamie-selway-leaves-blockchain/

Transcript:

Laura Shin:

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Laura Shin:

My guest today is Peter Smith, co-founder and CEO of Blockchain.com. Welcome, Peter.

Peter Smith:

Hey, how are you?

Laura Shin:

Good. Good. Enjoying London. So how did Blockchain.com get started?

Peter Smith:

We got started in 2011, so in crypto terms, ancient, ancient history, with the simple goal of making it a little easier to use bitcoin. So we built the first block explorer, which made it possible to dynamically search for transactions and data related to the bitcoin blockchain, and then shortly after that, we released an API which made it a lot easier for people to build on top of bitcoin.

And then shortly after that, we released the first hybrid wallet that enabled people to use bitcoin, you know, from a mobile phone, like iOS, Android, back then, even Windows phone or web without giving up control of their bitcoin, while still having their private keys, and you know, today, we’re probably most known for the wallet and the block explorer, and today’s wallet supports, you know, a range of assets across different crypto networks, as does the explorer, and millions and millions of people around the world use our products every day.

Laura Shin:

So, as far as I understand, I think one of your co-founders, Ben Reeves, worked with Brian Armstrong for a short period on the product that eventually became Coinbase, and this Wired article, it’s kind of old, indicates that they had philosophical differences over, like, custodial versus non-custodial approaches, and in general, I’ve noticed just, you know, from browsing your website and stuff, that Blockchain.com seems to really always talk about its philosophy that users should own their own private keys. Why is this such an important tenet for the company?

Peter Smith:

Yeah, so it’s definitely their story, and they’ve told that, but I think it’s important to note there that the relationship was more about using the initial traction Blockchain had to apply to Y Combinator, and so Ben never worked on Coinbase I guess in a way Brian worked on Blockchain, and the difference in philosophy, as you rightly point out, 100 percent comes down to how you feel people should use crypto. So, in our view, you know, crypto is more than just an investment or a fad or a quick way to make money.

It’s a way to take control of your own financial future, to be a self-sovereign financial individual, and a non-custodial solution destroying your crypto is the very centerpiece to that, and that’s been our belief as a company since 2012, since long before that belief was possible or really even a good idea, and it’s funny how things in crypto come full circle. You know, if you went back to late 2013 when people started raising venture capital, the idea that millions of people would use a non-custodial wallet was, like, almost a joke.

You know, so you had every…and you can go back and look at blog posts and Twitter accounts. You know, you had every sort of analyst in the market saying that the non-custodial solutions didn’t stand a chance up against the custody stuff, and Coinbase was, of course, a big one in that category, but so was Circle and Zappo, which were experienced CEOs bringing products to market, and what was interesting about it at the time was it was really a philosophical debate. Like, will most bitcoins be stored in, you know, e-wallet solutions where the company has control of the money, or will this non-custodial thing really happen?

And at the time, the vast majority of bitcoin transactions were generated, actually, by custody products, by products where the user didn’t have control of their funds. Partly this is due to how many bitcoin transactions were being generated by Mt. Gox, right? And partly, this had to do with, you know, the fact that 5, 6 years ago, using a non-custodial solution was a much bigger sacrifice from a usability standpoint than it is today, and one of the things that’s happened over the course of the last year that I think very few people would’ve predicted is that it’s actually shifted dramatically to non-custodial.

So fewer bitcoins are held in custody products today as a percentage than at any point in crypto history, and more transactions in both bitcoin in Ethereum are generated by non-custodial products than by custodial products, which is a fascinating way that the market has turned out, and the extent to which this is true is, you know, really deep, even down to a market structure and strategy perspective where you have folks that’ve long been associated with custody products, you know, with full custody products who are now building non-custodial products.

And the reason has to do with the future of crypto in our view, which is that, you know, outside of a simple speculation product, almost everything interesting that you can build with crypto and crypto assets and the crypto financial system relies on your customer having a private key that they control. Some people talk about DeFi or distributed identities or on-chain lending or all this stuff that, you know, the magical financial future that we’re all trying to build. None of it works unless you have users that have their own private key.

Laura Shin:

Wow, you just said so many interesting things that I want to follow up on, but one was the stats that you mentioned about how there’s most bitcoins now…or I don’t remember how you phrased it, but there’s more bitcoins now I think that are non-custodial than ever in bitcoin’s history. How do you know that?

Peter Smith:

So we have a large team of data scientists and probably the deepest proprietary dataset about the bitcoin network in the industry, and so we’re able to look at where, you know, the bitcoins in circulation or bitcoins in storage are on an hourly market-to-market basis. So we can tell you what venues have more reserves, what venues have less on an hour-by-hour mark, and we can tell, for example, like, that exchanges have less bitcoins in custody today than they did X, you know, time interval ago, et cetera.

Laura Shin:

And when did you see that trend starting, and do you think there were any particular drivers of it?

Peter Smith:

Yeah, you know, the high point for custody products was in late 2014 / early 2015 I believe, but I’d have to look to be exactly sure, but that was the high point for custody products as a class.

Laura Shin:

Oh, that’s interesting. Sort of like almost a year after Gox, and then ever since then, it’s been going down?

Peter Smith:

Correct. Yeah, because you remember, there was the big Mt. Gox hack, right?

Laura Shin:

Yeah.

Peter Smith:

But then shortly thereafter, there was also the Bitfinex hack, and Bitfinex had a huge amount of funds under custody when that happened, and there was a major capital flight, and the behavior changed from I’m going to open up, you know, an account on an exchange and buy bitcoin and let it sit there, to I’m going to pull that back, and we were one of the largest beneficiaries of that. We had a major, major inflow into our platform in that time period. People also generally…the idea that, like, you’re going to buy your crypto and then pull it off is kind of like a generally accepted principle now rather than, you know, if you go back to 2014, 2013 and you’re like, oh, what do you do with your crypto once you buy it? People are like, just let it sit there.

Laura Shin:

Right. Put it on a hard drive that you later accidentally throw out and have to…

Peter Smith:

No. No, the average behavior was wire money to Mt. Gox or Bitfinex or Bitstamp, but mostly Mt. Gox and Bitfinex. Buy the crypto. Let it sit.

Laura Shin:

Oh, I see. You mean let it sit on the exchange. Yeah.

Peter Smith:

Yeah, and now that sort of acknowledges, like, probably a bad idea, right? So even Coinbase, which is huge in the market of custody products today, hasn’t really seen the amount of bitcoin they have under management meaningfully go up, despite the fact that they’re serving far more customers.

Laura Shin:

Yeah, well, I’m sure both ahead of the bitcoin cash hard fork, we know that the reserves got depleted by about half, so that was a big…

Peter Smith:

Yeah, massive depletion there.

Laura Shin:

Yeah, did you guys benefit from that?

Peter Smith:

Massively, because one of the other things about every user having their own private key is that it means every user can split their funds, right, and so it’s much easier for us to split users’ funds and get them access to things on another chain than it is for a custody product.

Laura Shin:

Right. Wow. Yeah. This is already getting super interesting, and I haven’t even gotten to ask you a very important question, which is so you were not present in the very beginning of Blockchain. So how did you get involved in this company and what did you do before?

Peter Smith:

I guess one of the things that’s interesting about startups is that there’s always, like, some pressure after the startup goes somewhere to invent a really clean genesis story, like this really beautiful moment where there was this insight in this co-working space, and then we all apply to Y Combinator together and then raise capital from SV Angel or something, and that’s never what happened here.

Blockchain, for years, was more of a collective of people who cared about bitcoin and cared about building cool stuff than it was a company, and there were lots of people that had lots of roles throughout that. In fact, there wasn’t formally a company that held the intellectual property of Blockchain until shortly before we raised our first venture round, and so it’s really hard to tell, like, where did the company start? When did the company start?

The thing that we know and is important to the people internally that were there is that, at some point, when we decided that we were going to go from being a collective to being a company, we sat down and identified who were the co-founders of the company? You know, how we were going to be related to each other in the future and who was going to drive the company forward, and you know, that was a very deliberate decision that we took, one, because it was clear that the company needed to scale pretty quickly at that time and needed outside capital to do so.

The second, being that some folks inside the company, you know, inside that group of four people, were much more excited about being sort of at the front of that drive, which has been tough. Like, being a founder of a cryptocurrency company is a stressful and personally high-risk endeavor, not just from a normal startup stress perspective, but also from a personal security and safety perspective, and it was becoming clear that that was a sacrifice people were going to have to make.

So…and this is sort of like a question of fascination for journalists. Like, where did Blockchain come from? Because everyone’s heard the charming stories of York and the apartment in the north that we all worked in, and the reality is, like, you know, even most of us that were there don’t really know, and the sort of only salient point of when did we all get involved in the company is when we all sat down and decided to incorporate the thing, which was only maybe six months before we raised the Lightspeed round.

Laura Shin:

Now you’ve expanded well beyond the wallet. You’ve got your institutional vertical culled markets, which also has a research unit. You’ve got Lockbox, which is your hardware wallet. You’ve obviously done the data service or the block explorer for quite a while. So how do all these pieces work together? Like, what is the overarching vision for the company?

Peter Smith:

Yeah. So, you know, we got started with a pretty simple mission, which was make bitcoin a little easier to use, and had a big changeup to that mission, which is basically make crypto a little easier to use. So just broaden the number of assets when more interesting cryptos came around the block, which was a controversial decision at the time, but not every crypto company from the era we’re from decided to do that.

Laura Shin:

And wait, just so I know, when did you decide to add more?

Peter Smith:

About two and a half years ago now, and the challenge is that when we first started, every crypto user had basically the same needs, and you know, keeping in mind that it’s our core belief that you’re not really using crypto unless you have your own private key. So, like, everybody had the same set of needs. We’re like, how can we make it possible for Laura to use crypto and have her own private key? But Laura and Micky Malka both had basically the same requirement set back then, and I don’t know a lot about your personal financial situation, but let’s assume…

Laura Shin:

It’s not like Micky Malka’s. I can tell you that.

Peter Smith:

Let’s assume it’s not like Micky Malka’s. Right.

Laura Shin:

He’s a VC at Ribbit Capital, by the way, for people who don’t know.

Peter Smith:

And it was one of our very early users that once terrified us with the balance of his account, or another person that’s spoken a lot about using our product in a very heavy way, Jim Robinson at RR&E, right? So let’s think about them.

Laura Shin:

But something that’s interesting is it’s funny that you mentioned Micky because he invested in Coinbase.

Peter Smith:

Yeah. Yeah. For sure.

Laura Shin:

But anyway, so keep going.

Peter Smith:

And then kept using our products. We never met with Ribbit because of the conflict with Zappo.

Laura Shin:

Oh, I see.

Peter Smith:

Yeah. That’s all not very interesting, but in any case, the needs diverged a lot. So, like, your needs and Jim Robinson’s needs are very divergent. We can’t serve you both with the same product. The needs of some of our institutional partners that we work with to provide liquidity on specific assets and to provide liquidity inside our wallet are very different from, you know, my needs or your needs or the next person’s needs.

And so we have had to deepen our product offering to basically serve specific client needs. You have to remember, we have a lot of clients who date back to 2012, 2011, and they now have huge amounts of notional value in crypto, right, and our, you know, consumer brokerage trading product swap doesn’t work for them. We do 10-thousand-, 20-thousand-dollar trades in there. We don’t do 40-million-dollar trades. We have 2012 customers that do 40-million-dollar trades with us.

So you need the market steam, right, because you’re not doing a 40-million-dollar trade inside the wallet. We’d love to figure out how to do it. Compliance would kill us. You know, you have folks who are…about 20, 30 percent of our customers are active traders, and they mostly use other exchange products and then sweep their funds back to Blockchain, and we can see them doing that constantly.

So, like, how do we better serve their needs? How do we make it easier to enable that user case? Even down to, like, the institutions that we work with that do a lot of liquidity, so quantitative trading funds, they have a need to borrow crypto both to hedge positions as well as to provide inventory at venues that they trade on, and so we now run a pretty deep lending operation. We’ll loan, like, mid nine digits of crypto this quarter, which I guess probably makes us a top five lender in the crypto market.

And so, generally speaking, we’re a very product development focused company. When there’s a customer need, we’re going to do our best to provide that to our customers, and as it broadens the number of…you know, I think nation states will be in crypto at some point. What kind of products are we going to have to build nation states? I don’t know, but I’m pretty excited to find out.

Laura Shin:

Yeah, I want to circle back to that, but so just a question. So if you’re non-custodial, but you’re lending nine figures worth of a US dollar bill I guess, so where do those bitcoins come from?

Peter Smith:

Magic. No. One of the great assets of the company is our relationships with, you know, crypto holders, whether that’s consumers, businesses, crypto projects, and so we’re generally able to borrow a lot of inventory. So, you know, we borrow from a long-term holder. We then lend out short-term loans, and that’s how lending does work generally, and we just happen to have very deep relationships to the supply side in the market. We do, though…and this is good for you to point out.

We do also run a custody and vault product now, and so there are clients that, you know, being entirely non-custodial doesn’t make sense. A good example of that is…all those clients are so secretive, so it’s really hard to talk about them, but like, example, XYZ crypto project, they self-custody a ton of their assets, but they don’t want to be single threaded, right? They don’t want to be totally exposed to one system, right, and so they’ve parked a significant amount of reserve capital in our custody system. Now, that’s a very different use case from, like, the average person.

But does that crypto project have their own private keys? Absolutely. Does every single client that we deal with have their own private keys? Absolutely, but there are some use cases where we need to have custody of their funds to enable a product or use case, and in that scenario, we have a custody and vault system that we run, and it’s, you know, one of these, like, crazy, multi-geography, multi-system, personnel redundant, in the side of a mountain with armed guards kind of situation.

Laura Shin:

It’s like a mini Xapo?

Peter Smith:

It’s heavier duty than Xapo, and the reason is that Xapo’s system is, you know, half a decade old at this point. Ours is not that old. It’s only maybe a year old.

Laura Shin:

Oh, wow. Okay.

Peter Smith:

Yeah. Well, the current version that we’re on is about a year old, and so, yeah, it’s a bit more of a modern system, but the catchphrase is, like, geographically, politically system and technology redundant. We don’t really lead a go-to-market proposition with the custody product, and the reason…and it’s super sexy to talk about custody products over the last year in the crypto space, and the reason is it’s not a very good business because almost every custody provider will custody assets for free. Like, we’ll store your assets for free if you’re a qualified client. So how much marketing and sales effort do you want to put behind something that…like, if we’ll provide if for free, other people will provide it for free.

Laura Shin:

Well, if you get into staking, then you can make money from that.

Peter Smith:

And we do stake.

Laura Shin:

Oh, really?

Peter Smith:

Yeah. Yeah, but your clients…

Laura Shin:

And you charge it…

Peter Smith:

Your clients expect you to give them most of the staking fees.

Laura Shin:

Well, still, but I mean, you can make money from it.

Peter Smith:

Very small amounts of money, and it’s like, at this point in the game, the staking ecosystem is very small.

Laura Shin:

So I’m confused because you offer bitcoin, bitcoin cash…no, ether and XLM.

Peter Smith:

And we also offer a stablecoin in the wallet.

Laura Shin:

But where does staking come in?

Peter Smith:

We don’t stake in the wallet. Our custody system stakes.

Laura Shin:

Oh, so you allow storage of other assets?

Peter Smith:

Yeah, our custody system holds, like, 47 different assets.

Laura Shin:

Oh, okay, okay. So I was going to ask you…

Peter Smith:

And our market’s operation will trade anything, almost anything. Yeah, so we trade…

Laura Shin:

Are you talking about your OTC desk?

Peter Smith:

Yeah, we trade heavy volume in all kinds of assets that are not in the wallet.

Laura Shin:

All right. So I actually was going to ask you kind of a set of questions about your typical customer, but sort of sounds like you don’t have a typical customer because you’re serving people like me as well as the Milky Malkas and the Jim Robinsons.

Peter Smith:

I can break it down for you.

Laura Shin:

Okay.

Peter Smith:

So it’s basically like crypto OGs, so people that’ve been in crypto a long time, right? Then there’s people like you. Well, maybe you’re a crypto OG. I don’t know, but there’s, like, your average retail consumer, right, and they’re like, you know, 22 to 37 years old, and they usually bought a couple thousand dollars of crypto, and if they did that in 2013, now they have a lot of crypto. If they did that in 2017, they don’t have as much crypto. You know, so on and so forth, and those customers are served in the wallet, for the most part. Then there’s a group of high net worth sort of individuals, and those folks we serve out of our markets business. So OTC trading as well as investing into our fund products. So we have actively managed products, as well.

Laura Shin:

Right. You have a venture fund.

Peter Smith:

We do. Yeah, we do.

Laura Shin:

Yeah, when did that launch?

Peter Smith:

Very quietly about nine months ago.

Laura Shin:

Okay. Yeah, I just saw that one on the website. I was like, I don’t remember hearing about that.

Peter Smith:

Very quietly. We’ve been investing out of it, and it has both internal capital and external capital. So it’s an unusual…

Laura Shin:

And are you investing for equity?

Peter Smith:

Yeah. Equity, tokens, whatever.

Laura Shin:

Oh, interesting. Can you name…

Peter Smith:

We’ll invest in podcasts.

Laura Shin:

Really?

Peter Smith:

No.

Laura Shin:

Not like I’m looking for investment.

Peter Smith:

We have not yet invested in a podcast, although people always talk about tokenizing an individual, and like, you would be such a cool test case of tokenizing an individual.

Laura Shin:

I know, but it would be like a securities offering.

Peter Smith:

Move to Switzerland. Move to China. I don’t know, you know?

Laura Shin:

Oh my gosh. I went to Switzerland once, and I was like, this place is super sterile, but I’m going back again very soon, so we’ll see what I think this time around. Maybe I’ll like it.

Peter Smith:

So, anyway, we’ve got those clients, and then we’ve got, you know, what I would call entities, and these are quantitative trading funds, crypto hedge funds, crypto venture funds, multi-asset market makers, and then crypto projects, so protocol projects, and we do business across that whole protocol.

Laura Shin:

Wow. Okay. So once you decided to go with the multi-token universe, you really went for it. All right, so we’re going to talk a little bit more about Blockchain’s main business lines in a moment, but first, a quick word from our fabulous sponsors.

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Laura Shin:

Back to my conversation with Peter Smith of Blockchain. So something else I was wondering about more in the wallet area is have you noticed behaviors amongst that set changing over time? Like, you know, how do they transact? What for, and also, since I don’t think you collect a ton of information on your users, how would you figure that stuff out?

Peter Smith:

So there were a few questions in there. We’re playing this game where you ask me…

Laura Shin:

Because you’re speaking super long, so…

Peter Smith:

Like, five questions, and I give you six answers.

Laura Shin:

I know, because I have way more questions that I can ask in an hour, and you are taking way longer to answer every single question, so I’m trying to pack them in.

Peter Smith:

So consumer behavior. So, basically, we have different buckets of consumers, and it’s easy to cut them in two ways. One is developed world versus non-developed world. The other is crisis economies versus non-crisis economies, and then the last way to cut it is active traders versus non-active traders, and all of those cuts will give you very different sort of outcomes about user behavior, and they’re mostly stuff very logical for you to guess. People in crisis countries, they keep doing what they’re doing regardless of what the price of bitcoin is doing, because whatever the price of bitcoin is doing, it’s not worse than what’s going on in their country, right?

So, like, Venezuela is un-impacted…our Venezuelan metrics are not driven by the price of bitcoin. They’re driven by the disaster in Venezuela, right? Same because it’s true for Ukraine, right? Et cetera. Then active traders of very specific…you know, they log in all the time. It’s very correlated to price. You know, they’re going to log in and make trades or log in and move money to venues. That’s what they do.

Laura Shin:

And so you literally watch coins from those wallets go to exchanges and then come back or something?

Peter Smith:

In the aggregate. So all of our customer-level analysis is done aggregated and anonymized. So I don’t know what you did with your wallet, but I know what everyone did with their wallets yesterday. Then the last segment is sort of America and Europe versus everywhere else. American customer base is the hardest customer base to keep interested, but the fastest velocity base when the market starts moving. America’s like the supreme speculators in the crypto market.

And so, you know, we joke that the American user base is like a blessing and a curse, because when the market’s ripping, you’ll do a lot of revenue off of it, but it’s impossible to get them interested when the market’s quiet. On top of that, they’re the noisiest customers. So they file the most support tickets, and they’re the noisiest on social media and all the way down the line. The other thing that’s a really interesting fact about Blockchain is that we do provide a fair number of regulated services, regulated products, and for all of those products, we have to comply with relevant FCA, you know, U.S. Treasury, BSA, all the acronyms compliance laws.

And so one of the things that is not widely known about Blockchain is that we have probably, you know, put more people through compliance processes in the last year than maybe any other FinTech company out there. So, currently today, we do about, you know, anywhere from 20 to 30 thousand identity verifications a day, which, you know, because of the way you have to buy capacity at the vendors, you kind of know who’s buying capacity where, and really puts us in a league of our own on how many IDVs we’re buying on a daily basis right now.

Laura Shin:

Yeah, but some of that might be because you only started doing that recently, as well, right?

Peter Smith:

We’ve been doing it for two and a half years.

Laura Shin:

Okay, but still, I mean, Coinbase was doing it long before, so spread out, because I think maybe you guys had, like, roughly the…I don’t know, it’s hard to know exactly, but actually, just to go back, I want to know what is the theory around why Americans are so difficult to interest in a down market and the quickest to jump when it’s an up market.

Peter Smith:

They’re just there to speculate.

Laura Shin:

Oh, okay. Yeah, but also I think probably…maybe this is an obvious thing to say, but just because they have a well-functioning financial system, so they sort of don’t need bitcoin for any other reason, right?

Peter Smith:

Yeah. If you’re born in America, you won the lottery. I mean, even the EU is okay, but not nearly as good as America. Like, you know, you have the dollar. You have access to the dollar.

Laura Shin:

And yet you choose to live in the UK.

Peter Smith:

I still have access to the dollar, Laura.

Laura Shin:

That’s true. That’s true. Okay, we’re going to stop talking about you because this is about Blockchain. So something that I’m so curious about is why did it take until January 2018 to enable buying and selling on Blockchain?

Peter Smith:

So if you remember earlier in our conversation, we were talking about our mission to make it easier for people to hold their own funds, and it took us a long time to get the product at a parity of convenience with centralized wallets, and so, you know, we had to rewrite entire encryption libraries. We had to improve buffering. We had to, like, create…I mean, it’s a huge computer science investment to get to the point where, you know, if you pull out your iPhone, your Android, and your laptop, you can log into your wallet on all three simultaneously and stay in sync.

That is something that seems like a small thing, but is actually incredibly difficult to pull off, and as it turns out, it’s much easier to build a centralized solution to the problem of holding customer funds, and we know that because we have a centralized solution nowadays, but building the decentralized one in a way that is easy for Laura to use and is easy for my little brother to use…he’s not an engineer. Is really challenging, and it took us years, and it was a huge investment to do that, to invest in the data products and invest in the stuff that powers our acquisition funnel.

So we just didn’t get to it, and our view is, like, do we want to be at the center of the crypto financial system, or do we want to be running the tollbooth at the edge of the system? And we wanted to always bias towards, you know, even if it was painful in the short term, making sure that we maneuver ourselves in such a way that we had a shot at being at the center of the crypto financial system and not operating a tollbooth on the edge.

Laura Shin:

Right. So, but one other thing, just to go back to the buying and selling, is it actually possible for US residents to purchase on Blockchain.com? Because, actually, I could not figure this out easily, and because I’m a New York resident, that was like an avid hurdle.

Peter Smith:

It’s not possible for New York residents.

Laura Shin:

Okay, but what about other states?

Peter Smith:

Most states in the US, it is, and the number of states is sort of consistently expanding, and by the end of this year, we’ll be more or less complete.

Laura Shin:

Oh, okay. Yeah, it’s at 22 states now, and when you say they can purchase, do you mean…all of the assets you have are bitcoin, bitcoin cash, Ethereum…

Peter Smith:

Correct.

Laura Shin:

Okay, and then I also wanted to ask you…

Peter Smith:

And do work with a wide variety of banking and card payment processors to do that, but we’re much heavier on the fiat side of life in Europe than we are in the United States.

Laura Shin:

Oh, so you do serve more of as an on-ramp here?

Peter Smith:

Yeah. Yeah.

Laura Shin:

Oh, okay. So I wanted to ask also now about the higher end of your customers. What kind of volume are you doing on your OTC desk?

Peter Smith:

OTC volume is incredibly cyclical and spikey. So, like, you’ll have a really big month, and then you’ll have a month where you’re like, crickets. We have gradually, over the last year, moved away from trading with a lot of humans and more and more towards trading programmatically. So, you know, the API that powers all the liquidity in our wallets is very robust and is capable of pricing risk and size, and so we’ve started piping that into other platforms and providing liquidity programmatically rather than, you know, via humans.

Laura Shin:

So you’re talking about sort of like a dark pool?

Peter Smith:

Correct. Our internal trading system very much looks like a dark pool, and that trading system’s probably interesting to talk about. It was a huge investment. It’s a machine-trading platform. It plugs into other venues, like exchanges, but it also plugs into the largest market makers directly, and so, most of the time, we’re not even going to venues anymore. We’re either hedging risk out at a derivative or we’re hedging it out at a, like, quantitative market maker level, but almost the vast majority of our flow on a typical day, 80 percent plus is being cross-matched internally within our internalized matching engine, and so it very, very much looks like a dark pool, and so you’ll even see big OTC owners taken down against the retail flow and stuff like that. Just super fascinating.

Laura Shin:

Oh, that is interesting, and wait, then when you said 80 percent, is the other 20 just the wallet?

Peter Smith:

No, no, so 80 percent is internally matching. So I trade, you trade, Sarah trades, and we cross-net all of that together inside the matching engine, and of course, if just three of us traded, it wouldn’t be possible, but if thousands of us trade, it is, and so, from a scale, perspective, it’s interesting that we’re at a point now where most of it’s internalized. The other 20 percent is when, like, the book gets out of balance, right?

And suddenly we’re like, huh, people are selling a lot of bitcoins, and no one’s buying them. So we got to take that risk off. We got to go sell some bitcoins to somebody, and that’s when it will ping one of those market makers or you know, look at pricing on another venue, but basically, it combines the aggregated prices in order books from all of the places plugged into the smart trading platform, which, right now, I think it’s 17 venues. It looks for the best price and then sprays it around.

Laura Shin:

Okay, and you did that dark pool basically because it’s more efficient?

Peter Smith:

Yeah. It’s much more efficient. Also, you know, most of the consumer crypto platforms have struggled with a lack of liquidity, and I think when you start offering liquidity, you have to be bullet proof. Like, you have to always be able to offer a customer a trade and at a great price, and so it was really important that we built the machine trading infrastructure and all the associated data science that goes with it to be able to ensure that rock solid bullet proof liquidity.

Laura Shin:

So something that I noticed when I was doing the research is back in 2018, you announced through Fortune that you were building an exchange. So what happened with that?

Peter Smith:

I don’t think we’ve ever announced that we were building an exchange.

Laura Shin:

Oh, there was an interview with you in Fortune where it said that you made this hire…I’m trying to remember from where. From Goldman or somewhere, and the plan was to build an exchange with that hire. It was in January or February 2018.

Peter Smith:

We’ve definitely hired no talent from Goldman that is responsible for building an exchange.

Laura Shin:

Was it Facebook? Okay. All right.

Peter Smith:

Our head of markets, Charlie McGarraugh, is a former Goldman partner and ran their global medals trading business, but he very much is in that markets team that runs the dark pool and all that stuff.

Laura Shin:

Okay, it’s too bad that I don’t have internet here because I have the link, but well, I’ll link to it in the show notes.

Peter Smith:

I mean, it’s often…but I can talk about it. It’s often been guessed that we would build an exchange, and so there’s been articles, and I’m not sure about this one, but it’s speculated that we’ll build one. You know, we have a lot of clients who are active traders. We have a lot of liquidity, and we run an internal order book, and so those facts are widely known, and people would guess, like, why don’t you build your own exchange? The reality is that I didn’t really want to build an exchange, and my hope, and hope remains, that there will be a really solid exchange developed that will serve as the spot price leader for crypto.

Laura Shin:

And you don’t think there’s a contender yet?

Peter Smith:

You know, if you asked me what I thought would happen five years ago that I was right about and what I was wrong about, this would be the biggest shock in the market to me, which is that no one’s really built that product in the sense that, you know, we’re very active on all these venues. I’ve been trading for a long time. I’ve been trading crypto for a long time. The venues really haven’t evolved much since, like, 4 or 5 years ago, and you know, for a long time, Bitfinex was the leader in spot price discovery, right?

They’ve lost banking. Their banking’s really…for a client like us, their banking doesn’t work anymore, but their matching engine always worked, right? Their matching engine was reliable. It always worked, but even Bitfinex hasn’t really evolved into an institutional sub 100-microsecond exchange. You look at the other products out there, you know, their order books are very illiquid and toxic and/or their matching engines just don’t work when there’s a lot of volatility.

Laura Shin:

And what does it mean for a matching engine to be toxic?

Peter Smith:

So a market’s toxic when the liquidity’s, like, very thin at the top of the book and the spread between is wide, but toxicity’s like a mathematical concept inside an order book, and it’s super interesting to research, but the bigger problem is the matching engines just don’t work when there’s a ton of velocity. It’s partly because it’s tech companies building matching engines rather than people who’ve built matching engines building matching engines.

Laura Shin:

Well, what about Binance?

Peter Smith:

Binance’s matching engine is totally distributed inside of Amazon Web Services, so it’s not like a co-lo. It’s like a 200-300-microsecond, at best, matching engine, you know, which, in any normal market, would be, like, 1990’s speed. It’s not geared towards being a spot price discovery leader. It’s geared toward sort of being like an Amazon of crypto assets or Walmart, like, we have everything, you know? It’s about breadth, not speed, and they don’t have banking. So you can’t trade. When I say spot market, it’s probably important for me to clarify that I mean a place I can trade dollars and euros and pounds for digital assets, right, which I can’t do at Binance.

Laura Shin:

Right, although I think they’re starting to turn on some of the fiat exchanges.

Peter Smith:

Those so far have always been outside of the core Binance order book. They’re sort of like little franchises and very illiquid.

Laura Shin:

Oh, that’s right. That’s right.

Peter Smith:

Yeah, like, you can destroy the whole Malta order book with one bitcoin. So it’s not really the solution.

Laura Shin:

Yeah. Well, so it looks like there’s this opportunity for you that’s, like, just ripe.

Peter Smith:

Yeah. Yeah, and then we’d be running an exchange. Look, you know, I wouldn’t rule it out in the future, but I think that historically, we’ve been a neutral participant in the sort of exchange ecosystem, but you know, one of the things that I think is challenging is that it does hold the whole space back. Like, you know, this week, which, I know I’ve been told not to say this week, but recently, there was a crash at Bitstamp.

Laura Shin:

Let’s just tell the listeners all about how we do things here at Unchained, but anyway, no, keep going.

Peter Smith:

There was a crash at Bitstamp, right? Someone put a really big order, which should’ve been stopped by a collar.

Laura Shin:

Oh, I saw Dovey Wan tweet about this.

Peter Smith:

Yeah, and so a collar is like a risk mechanism which is basically designed to not rip your whole order book up, right? Bitstamp doesn’t have collars because the matching engine they use is the one they built six years ago, and so there’s no collar, and then it’s slow. So it took minutes to grind through this order, which meant that the entire reference rate on all the derivative exchanges was impacted.

Laura Shin:

Right, like BitMEX.

Peter Smith:

Like BitMEX, Deribit, et cetera, and the global crypto order book ripped off of one order for several thousand bitcoins, which, in a properly functioning venue with a fast matching engine, that order should’ve been ground through in seconds, and when that order was ground through in seconds, it never hits the reference rate, right? And so when you have these kind of problems, like, you know, it increases volatility. It destroys trust, and it seems like a problem that just is going nowhere, which is frankly shocking to me after half a decade.

Laura Shin:

Yeah. Yeah, I saw her tweeting about that and how, essentially, they profited from that with some kind of trade on BitMEX because they knew what was going to happen.

Peter Smith:

Dovey, by the way is, like…I don’t know her at all, but she’s one of the most fascinating people to follow on Twitter and super insightful analysis.

Laura Shin:

I saw her hilariously tweet…I forget what it was. Some news about Bitfinex or something, and then Mike Duda said the block was, like, dammit, we were going to do this story, but then…you know, whatever. You’ve adopted SegWit, the upgrade for bitcoin, which enables more transactions with each block on some of your products, but not on others, including your main product, the Blockchain wallet. Why not?

Peter Smith:

Yeah, so I think one important thing is to step back and understand the broader context of SegWit. SegWit is a change to the way signatures are handled in bitcoin that improves efficiency, and generally speaking, when the bitcoin community decided to focus on technology that would increase the efficiency of transactions rather than the throughput of transactions, it moved a lot of work from the protocol to clients, to people using…you know, sort of the end users of the protocol and software providers.

One of the things that’s important to understand about the way that our software works is that all of our software is generating transactions on the client side, which means that we have to handle that signing module across, you know, every model of iPhone, every model of Android, you know, tons of web browsers, Windows devices. So it’s not even just when we change something in an encryption library, changing it on three apps.

It’s changing it to support hundreds of devices past that, and it’s the riskiest kind of change we can make because if something goes wrong, you know, our clients’ funds will be at risk when their transactions aren’t signed properly. Past that, we also have to move clients’ funds to a new output type, which means that we have to do this across all our platforms simultaneously, and some of our platforms, like iOS, are behind other projects like web.

So if we only needed to roll it out on one platform, we would’ve already rolled it out on some of our wallets. So we would’ve already rolled it out on web, for example, but it has to be a simultaneous release, and to get it really, really right, we’d probably have to dedicate a whole cycle. You know, by the time SegWit was rolled out, fees had already spiked and then come back down, and so, you know, saving an extra 30 percent on fees hasn’t really been at the top of our product roadmap.

Customers, you know, when we survey them about what they want, what kind of features they need, it’s usually about broader access to assets, ways to store their crypto, and liquidity to trade between their crypto. It’s very rarely, you know, helped me save 30 percent on bitcoin transaction fees, and so while there’s a huge amount of interest on Twitter from about 15 or 20 Twitter accounts for us to adopt SegWit, there’s not a lot of demand for it across our customer base relative to other product priorities. Now, that said, you know, we felt like it was important to support SegWit on our block explorer.

Otherwise, the number one place people look up transactions wouldn’t show SegWit transactions. That would be terrible, and so we had that ready to go from day one. On our custody systems, it’s there. On our clearing and settlement systems, it’s there. So we actually do thousands of SegWit transactions every day. This will not make any of the folks that want us to do SegWit happy hearing this because, quite frankly, we generate 20 to 30 percent of all bitcoin transactions.

And so folks really want to see us adopt, because for the last year, adoption of SegWit has basically stalled, and what I’d say to those folks is, you know, we are going to get there. I won’t promise you exactly when. It’ll depend a lot on what happens tomorrow and what gets priorities in the dev roadmap and you know, is there another unplanned fork that we have to deal with? This stuff’s kind of constant, but we will get there, and we’ll get there when we can do it in a safe way across all of our platforms for all of our clients.

You know, I got started in this to help make bitcoin useful and easy for people, and I’m still super passionate about bitcoin. It’s kind of like your first love. I want to see it be as successful as possible, but today is really, as a community, committed to that digital gold thesis and narrative, and if you believe bitcoin is digital gold, you don’t need cheap fees. So every time someone on Twitter says bitcoin doesn’t need cheap fees, I say absolutely, and that’s a lot of the reason why SegWit hasn’t been prioritized.

Laura Shin:

All right, yeah, but previously, you were in the camp that didn’t want it to be digital gold, and that’s why you signed the SegWit2x thing right?

Peter Smith:

I thought, and still believe, that bitcoin could be more than one thing. I thought it could be digital gold and it could be cash for the internet. The community didn’t agree with me, and there was a lot of us that felt like bitcoin could be more than one thing, and you know, turns out we were in the minority, and maybe bitcoin will be more than one thing in the future. Today it’s digital gold, and supporting that use case means liquidity. It means fiat on-ramps. It means, you know, storage types, like adding hardware wallets, but it doesn’t mean optimizing for cheap fees.

Laura Shin:

So I wanted to ask you also, we’ve been talking about all the different jurisdictions and stuff. What has it been like trying to manage all these regulatory issues across multiple jurisdictions, and just out of curiosity also, how would you compare the different jurisdictions?

Peter Smith:

I don’t think it would be wise for me as the CEO of the firm to comment on which jurisdictions are my favorite.

Laura Shin:

Oh, please.

Peter Smith:

They’re all my favorite.

Laura Shin:

Oh, really?

Peter Smith:

Of course. Absolutely, and jokes aside, though, it’s been tough. It’s been really tough. You know, one of the first meetings I did, external meetings on behalf of the company, was I went in and met with the head of FinSEN at the time, like seven years ago and was like, here’s what we’re doing. What are the rules? She was like, this is a strange meeting, because I had no lawyers with me, you know, no legal advice. Just came in and was like, tell me what the rules are, and so I think most of the time, regulators are pretty reasonable. They’re usually reasonable people that want to achieve a certain outcome.

I think understanding that’s important. I think also understanding, like, what are your bright lines? What are things that you’re not willing to do? In our case, we’re not willing to give up on the dream of everyone having their own private key, right? So that model doesn’t work with existing regulation. The idea of everyone being their own bank isn’t something that regulation thought about 15 years ago as it was written or 30 years ago, whatever, and so we’ve had to engage in a global campaign to advocate on behalf of the non-custodial model.

And as the largest company running non-custodial front and center, the burden of doing that work has largely fallen on us, and so we’ve engaged in public advocacy work on behalf of that idea in countries all over the world, often very expensive campaigns, and we’ve been fortunate to be able to reach a place with a regulator in most jurisdictions where they agree with us, and that’s been tough, and it’s been a huge drain of time and resources, but because that’s something that we believe in so deeply, it’s worth it.

Laura Shin:

Vitalik actually recently wrote this blog post where he was saying that some of these regulations coming out around data privacy and then the recent FinCEN guidance on crypto, that all those things are positive for peer-to-peer transactions, and you may not know the FinCEN thing either, but that was the one…

Peter Smith:

I’m very familiar with the FinCEN thing.

Laura Shin:

Yeah, because, basically, it was like a boon, I would think, for your kind of company.

Peter Smith:

We spent many years working with FinCEN and treasury. Yeah.

Laura Shin:

Oh, okay. Yeah, so, I mean, in general…

Peter Smith:

But yeah, so, you know, and if you believe that the future, as Vitalik does, the future of crypto is in people having their own keys and is in software powering this whole financial system, that guidance from FinCEN was incredibly positive.

Laura Shin:

Yeah, for sure. In particular, for Blockchain in particular, or I mean, but then more broadly, for peer-to-peer transacting.

Peter Smith:

Yeah, I think you’re right. It was mostly likely incredibly positive for Blockchain. I think when we think about the mission of Blockchain, which is is what is important to at least me and the reason that I’m still here every day for god knows how long, it was so broadly positive for the whole class of products, that I was really happy to see it.

At the same time, though, this is a thing that requires constant vigilance and constant effort because it’s not a concept…like, crypto people understand it. You know, whenever we talk about…say I sit down with Vitalik and I’m talking…well, Vitalik actually gets this stuff, but I sit down with the average crypto and I’m like, oh, you explain this to regulators all over the world. They’re like, why? It’s so obvious. I’m like, well, not obvious to the regulator.

And so we require constant advocacy and explanation, and we haven’t been alone in that. I think Coin Center has been a powerful ally, an advocate on this front, as well, but I think generally, when you look at what is positive in the crypto world, the fact that there was sort of like, the first phase of the advocacy work around this was the regulator being like, what? And then next being like, hmm, maybe, and now it’s kind of being accepted formally, and I think that’s super positive for the entire crypto ecosystem.

Laura Shin:

Yeah. Yeah, with the exception of that one Congressperson who wants to ban bitcoin, but anyway…

Peter Smith:

I think, you know, threatening to ban bitcoin is a great way to get the TVs and social media to pay attention to you for a day. So I don’t think it’s all that serious.

Laura Shin:

Yeah. I was kind of like, all right, are you going to turn off the internet or what? All right, something else I want to ask about is to do the Stellar airdrop, you’ve been requiring that people verify their identities, and that sort of, in some sense, seems like a departure from Blockchain’s ethos, you know, not exactly…they’re still maintaining control of their private keys, but directionally. So were you facing pressure from regulators to get more info on your users?

Peter Smith:

So it’s interesting. The core belief here has never been anonymity. You know, we’ve always used your IP address to make sure that people don’t log into your wallet that aren’t you. We’ve taken your phone number. We’ve taken your email. You know, since day one, we’ve collected enough information about customers that it was not a very anonymous service.

The core value here is user control of their funds, right? So why do we require you to verify your identity to receive the airdrop? The answer is very simple. We’re sending you money, and any time that we’re sending someone money, we need to know their identity thanks to a variety of regulators around the world, you know, the alphabet soup of three-letter regulators. You can still log onto our website today, open up a wallet with just your email.

We’re not going to be able to send you free money. We’re not going to be able to power your trading, but you can still use our service, and we’re deeply committed to that. You know, one of the other reasons that we verify people’s identity with airdrop is to combat synthetic fraud, because anytime you do an airdrop, people try to get more than their airdrop. They try to get a thousand of the airdrops.

Laura Shin:

A sybil attack, right.

Peter Smith:

Or 100 thousand, and there’s a whole cottage industry dedicated to referral fraud, payments fraud, and increasingly, airdrop fraud, and so, you know, we triangulate a wide variety of data points to prevent fraud in airdrops, because we do airdrops, not just a seller airdrop, and the challenge is collecting enough statistically significant data points to build your fraud model, and so a lot of the identify verification stuff feeds into our fraud models.

Laura Shin:

Right. Right. That makes sense, and that also explains why it’s been taking so long do to the Stellar.

Peter Smith:

It’s really hard. It’s an incredibly difficult computer science problem to give away free money at scale, you know, and look, airdrops usually have fraud rate loss rate of around 40 to 60 percent.

Laura Shin:

Oh, meaning that you’re sending money to these accounts that are…

Peter Smith:

Well, for airdrops normally, yeah. So if you look at airdrops historically, 40 to 60 percent of the airdrop is lost to fraudsters. We internally had a target of under 10 percent. When we told people that, they were like, you’re insane, and when the airdrop first started, we were definitely not under 20 percent. Today, we’re in the single digit percentage, but it’s been a huge, like, multi-million-dollar investment into the fraud and data science side to make that possible.

Laura Shin:

Okay. Yeah, because I did see some users complaining about why it was taking so long and stuff, but I think that it was…

Peter Smith:

Look, there’s a huge wait list right now. On the airdrop, there’s probably 50, 60 thousand people in the backlog, but generally, to onboard at Blockchain right now, there’s probably a wait list that’s I think 450 thousand people deep.

Laura Shin:

Wait, for the wallet?

Peter Smith:

Yeah.

Laura Shin:

And why is that?

Peter Smith:

Because we will let you sign up. It’s very low friction. You can do it in 30 seconds, but if you want to go through more onboarding to be able to trade, to have access to fiat, maybe access to airdrops, there’s a further verification process you need to go through, and depending on your jurisdiction, it can be identity verification. It can be, you know, all kinds of stuff. It really depends on your jurisdiction, but we can only process so many applications a day, and today, we process, you know, 30, 40 thousand a day, but even with that level, which is a lot, we still have a backlog of about 450 thousand people waiting to be processed.

Laura Shin:

So it takes, what, a couple weeks or something to get onboarded?

Peter Smith:

Really varies by country.

Laura Shin:

Oh, okay. So I actually want to circle back to something that you mentioned at the beginning, which is governments participating in digital currency in some fashion, whether it might be releasing their own central bank digital currency. In August 2017, you said at the time that we were two years out from a top 30 government in the world releasing a central bank digital currency. That’s just in a couple months. So where do you stand on that prediction now, and I don’t know what you were going to say earlier when you brought that up, if you wanted to add on that.

Peter Smith:

Yeah. So I think we’re closer on a western government, like a G7 government, than people think.

Laura Shin:

By August?

Peter Smith:

Maybe, and Venezuela already released theirs, which is hilarious.

Laura Shin:

Okay, not a top 30 and not a real…

Peter Smith:

Venezuela?

Laura Shin:

Oh, you know, that’s a good question. I don’t know.

Peter Smith:

Well, if you look at…

Laura Shin:

Is that by population?

Peter Smith:

If you look at a 10-year snapshot, Venezuela is a top 30 country. If you look at a one-year snapshot, thanks to their economy falling off the list, it’s not. So I was this close to being right, Laura. This close. Oh well.

Laura Shin:

I can’t give you that one, but anyway.

Peter Smith:

But anyways, look, it’s a pretty bold prediction.

Laura Shin:

It was.

Peter Smith:

You know, I almost got there. Didn’t quite, and I think that the other countries that are close to it that’ve made a lot of progress in the background, Russia, which, their project is very advanced. The Canadians got quite close and then didn’t do it, and I was counting on the Canadians or the Danish people, and the Canadians didn’t quite get there, but we’ll see. I’m very happy to be right about the two years if something happens in the next year or two.

Laura Shin:

All right. Well, we’ll see. The Canadians definitely have been front and center with Ethereum.

Peter Smith:

Look, I think the other things the governments are going to do is start holding crypto as part of their foreign reserves.

Laura Shin:

Oh, really? Want to put a deadline on that prediction? We can always reference it later in my podcast.

Peter Smith:

Sure, but governments already hold crypto.

Laura Shin:

Which ones and which cryptos?

Peter Smith:

Slovakia holds a lot of bitcoin that they confiscated.

Laura Shin:

For what purpose? Oh.

Peter Smith:

But they made the right choice not to sell it, right? That’s public. There’s other governments that haven’t publicly disclosed that are holding bitcoin that they confiscated. I’m not yet aware of a government that’s bought a large position of bitcoin or Ethereum or anything else, but there are certainly governments that are holding large positions, and there are sovereign wealth funds that are holding positions. So if you count the sovereign wealth fund as the government, then it’s already happened. So I’m happy to make that projection.

Laura Shin:

Okay. Yeah. I think that was already public. You’ve also said that Blockchain plans to go public in the next few years. Why, and do you see any challenge in doing that? Because, as we know, the crypto markets are very volatile, and sometimes there are these long winters, but you know, when you’re public, shareholders are looking at quarterly earnings.

Peter Smith:

Yeah. So the first thing is, like, when we go public, we’ll be able to look at a broad array of ways to go public, which will be super interesting. So you know, will non-crypto companies be going public by issuing tokens at that point, like major ones? That’ll be interesting. Will we go public on an IEC? You know, who knows? I think you’ve identified the problem for every major venture-backed crypto company, though, which is volatility, and we’ve been very, very principled about how we have thought about revenue and trying to only generate revenue when we thought we could do it in a sustainable, predictable way.

And so our financials are much less volatile looking than probably any other major crypto company. We’re probably the most capital efficient by an order of magnitude. So we’ve spent, by far, the most money of any major crypto company. We’ve also probably had the most stable set of financials, and this is largely because, one, we’re very long term, and being long term, a lot is about being predictable and managing risk. Two, we knew that we wanted to go public some day, and to do that, like, you need to be predictable and stable.

Laura Shin:

And just to be clear for people, because I did skip a whole bunch of questions because you were talking a bit long, but basically, the way you guys generate revenue is charging transaction fees on transactions. I imagine it’s the same with…or not the same fee, but you do that both at the high and low end of your customer base?

Peter Smith:

So we don’t charge for transactions. We charge for trades.

Laura Shin:

Oh, trades, okay.

Peter Smith:

Right, because you have to remember that we do 100 thousand-ish transactions on crypto a day. Not all of those are trades, and those transactions, like, when you pull out your wallet and you send me bitcoin, there is a transaction fee, but we just charge you our pass-through cost of that transaction. We don’t charge you anything on top of that. When you trade, we do take a margin on every trade.

Laura Shin:

Okay, and is that your main source of revenue?

Peter Smith:

That and advertising and then asset management, which our lending business is inside of.

Laura Shin:

Okay. So something that I was curious about is also there’s been a number of Wall Street executives hired at crypto companies here at Blockchain, but also at competitors. For instance, you hired Jamie Selway, who came from a broker dealer and trading technology from n investment technology group, but many of these people, whether here at Blockchain or at other companies, but including Jamie, did leave within a short time period. Why do you think that is?

Peter Smith:

Yeah, so last year, we went through the tough transition of building a real executive team. So we hired eight execs last year, promoted others internally. It’s a hard thing to pull off, probably one of the harder things that I’ve ever worked on here at Blockchain. Not all of them made it. You know, we hired people from not just Jamie, but we hired people from Twitter, TD Ameritrade, Goldman. We hired a public company CFO, all the way down the line, right?

And most of those people worked out and are essentially running the firm today. So, you know, I talked about the Goldman partner, the former Goldman partner, Charlie that runs markets now. Phenomenal leader inside the business. Our CFO who came from Fortress and OneMain, you know, and took a company public and has the super résumé, right, Macrina, incredible and effective leader. Both of these people are from finance. You know, we have another executive in our product team from TD Ameritrade, like, from equities, right?

Our general manager of our wallet is a long-time executive here named Zen who came from UBS. Ran a trading team at UBS. So the point that I’m making is that it’s not so much about people coming from finance. A lot of those people have worked out. It’s that not everyone’s going to make it inside the context of our crypto firm, right, and I think what separates people out here is that the work we do is really hard. Like, really hard and probably even harder than the average crypto company because of the non-custodial thing.

And you have to really believe in that vision, and we were not able to baptize everyone into the cult, and so when you’re building out these exec teams, you expect a certain loss rate or a rejection rate. It’s almost like the body, you know, rejecting an implant. Now, at the same time, it’s been true that the wave of people, of big-name execs in the crypto companies and the wave out…

You know, we had Jamie Selway. Coinbase had I think Kellner. It’s been pretty consistent, and I think that’s probably the same story, right, which is just it’s hard to mainstream these people over. I think equity people in general have been really hard, even when we look at lower levels across the org. Partially, this is because equities people are used to a very defined market structure of custodians, clearers, and all this stuff.

And you kind of get equities people in the crypto market, and they’re like, okay, so how’s this all work? And you’re like, well, we have to build the custody, the clearing, the custodian, the lending, the routing, and they’re like, holy shit. You know, this is going to be impossible, and you’re like, yeah, it’s basically impossible, but we might as well get on with it. You know, versus folks that you hire out of commodities has been very different.

Commodities, private equity, those are folks who are used to these kinds of exotic, strange, rapidly evolving global markets, and the other thing when I talk about global is equities folks are very…like, if you hire someone in equities in the US, they have really only done America ever, because equity markets are national, right? Whereas if you hire people from commodities, commodities people deal with the whole world. So it’s very tough to make the jump from equities to crypto, and we’ve seen that play out here and almost every other crypto firm.

Laura Shin:

It’s an interesting thesis, but it makes sense. So where can people learn more about you and Blockchain?

Peter Smith:

No one needs to learn more about me. I’m on Twitter @OneMorePeter, and then the company is at Blockchain.com, and you can go to Blockchain.com/about if you want to learn more about the firm.

Laura Shin:

Yeah. By the way, can I just say it is no fun…it’s like a total exercise in frustration Googling Peter Smith Blockchain. Even Blockchain.com, it really does not help very much, which I’m sure you enjoy.

Peter Smith:

You know, some founders want a profile. They want credit, whatever. I don’t. This company was built by hundreds of people that aren’t me.

Laura Shin:

No, no, but it’s like the Smith part and then the Blockchain part. Blockchain…do you guys regret using that name?

Peter Smith:

Absolutely not. It’s an amazing name.

Laura Shin:

Yeah, it is, except, I mean, it’s just very hard to find things about Blockchain the company, and it’s a sea of…but anyway.

Peter Smith:

I think, you know, when you’re a company, you mostly think about acquisition, acquiring new customers, and we probably have the premier property for that and the premier SEO property, and so I don’t think we’ve regretted it much.

Laura Shin:

I know. I should get, I don’t know, BlockchainPodcast.com or something.

Peter Smith:

I mean, we could put you at Blockchain.com/podcast. Then you’d really do well.

Laura Shin:

I don’t think anybody’s going to type that.

Peter Smith:

Blockchain.com/podcast?

Laura Shin:

Do people type, you know, dot com slash something?

Peter Smith:

Yeah, people type in Blockchain.com/wallet all the time. They directly type in Blockchain.com/markets.

Laura Shin:

Okay, you tell me if there are searches on your…because can’t your engineers figure out if people are typing that in?

Peter Smith:

Yeah, of course.

Laura Shin:

Okay, so then maybe we’ll talk. All right, thanks so much for coming on the show, Peter. It’s been great having you.

Peter Smith:

You’re welcome.

Laura Shin:

Thanks so much for joining us today. To learn more about Peter and Blockchain, check out the show notes inside your podcast player. If you are not signed up for my email newsletter, go to UnchainedPodcast.com right now to get my thoughts on the top crypto stories of the week, and be sure to check out our new channel on YouTube. Unchained is produced by me, Laura Shin, with help from Fractal Recording, Anthony Yeun, Daniel Nuss, and Rich Stroffolino. Thanks for listening.