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Peter McCormack: I'm going to take us back to the earn.com thing, because that's a good starting point for the crypto, for a couple of reasons. Firstly for understanding you, because it was Bitcoin only which was very interesting. By the way, I was a big fan of earn.com when I first used it. But I think it misses a couple of things.

Balaji Srinivasan: Sure!

Peter McCormack: I think sometimes it's really way too cheap to contact somebody. I think $20 to contact you is not enough. I am actually disincentivized to contact you through that. I want you to charge me $250, because then if it's important, I'm going to pay it and also I know you're going to reply. I've used it a few times and had people not reply or give crappy replies. I also think replies need to be scored with reviews.

Balaji Srinivasan: Absolutely! All of this stuff was actually on our roadmap, everything you're talking about.

Peter McCormack: I think there should be people on there who should be $10,000 to contact. But anyway, so it's an interesting point. Also with the sale to Coinbase, I'm not going to get into the kind of valuation, but I did look at the time and go, "whoa!" But one of the things I am thinking about is that, I can see this kind of vision of education and you know, when we talked about VR, the way to earn money and earn through crypto, so I'm seeing this kind of potential infrastructure for a future world of earning. So I do find that all interesting. But what I want to start with is that it was Bitcoin only. Why is that and where are your views right now? Let's start with Bitcoin.

Balaji Srinivasan: Okay. But actually can I take one of your things? So Emily Choi actually gave an interview to The Block like a month or two ago, maybe June, which you can look at where she talked about Earn and so on. She mentioned, and I think I can butcher this, the Earn acquisition has already paid for itself multiple times over and the reason is, some of these deals have actually been announced publicly, but for example, the Stellar deal with Coinbase Earn, was a billion XLM, which is worth more than a $100 million dollars on its own.

Peter McCormack: But that deal wasn't in place when it was sold?

Balaji Srinivasan: No, no. But what I mean is, post-acquisition, the integration of the thing has created more value for Coinbase than like...

Peter McCormack: But that's post rationalizing.

Balaji Srinivasan: No, that was the rationale for the deal. Lots of times whenever you sell or acquire a company and Marc Andreessen has written about this as well, you're calculating the value based on that start-up integrated with the bigger companies' distribution. So Earn on a standalone basis had several hundred thousands of users, somewhere between, I forget the exact number, short of a million, but several hundred thousand and it was actually doing quite well. Coinbase had like 30 million users.

So if we plugged some of the same dynamics or some of the features of Earn into Coinbase, we had a few different models which said, "hey, we could actually make a lot of money very quickly or generate a lot of value." So post-integration, if you go to coinbase.com/earn, did you see what we did with MakerDai?

Peter McCormack: No I didn't.

Balaji Srinivasan: Okay, well I know you don't follow like the Ether space or what have you, but just go to makerscan.io just for a second if you look at that.

Peter McCormack: I'm not connected to the net, but I'll check it afterwards!

Balaji Srinivasan: All right, so take a look at afterwards, but basically one Coinbase Earn campaign resulted in more decentralized loans being opened in a few days than an entire year beforehand. So what basically happened with Coinbase Earn, is we took one feature of Earn, which was like the tutorial aspects, there's like tons of other aspects of it which as you talk I'll come back to, but we took one feature and we integrated it into Coinbase and we made it possible to not just buy crypto but to earn crypto.

Over the last year, I think we've disclosed about a hundred million, but total closed is more than $300 million worth of deals for customers and I know that it's much more than that since I've left. So what does that mean? That means that a customer can click a button, watch a tutorial, do a task, and earn a cryptocurrency without a credit card in any country. Go ahead!

Peter McCormack: At so many times we're going to hit different points! One of my questions is, does a Coinbase retail customer need to learn what 0x is for?

Balaji Srinivasan: I think so and here's why. First of all, one of the biggest requests that we got at Coinbase was, "what do all these coins do?" Because obviously they're not taught in K through 12, they're not taught in college. To be educated about them, there's all these, we would call shills out there pumping stuff and they'll say everything is great. Blockchain is a confusing area, it's decentralized and blah, blah. So there's a huge desire and one of our most important customer service requests was, "what the heck do all these things do?" Often they'd say like, "I bought some Bitcoin. What else is interesting in the space? What else should I look at?"

Peter McCormack: Nothing!

Balaji Srinivasan: Okay, let me come back to that and I'll make actually, I think an argument on that. So let me analyze Coinbase Earn at least. There's earn.com standalone and there's Coinbase Earn. Coinbase Earn, I think it suited three different groups of person. So first, let's say you're starting a new coin or you've got a scaled existing coin. you're running Stellar or Zcash or something.

For such a person, if they want to acquire customers and they go to Google or Facebook, well first they would need to liquidate their current crypto in order to buy USD, which tanks the price number one. Second, Google and Facebook often don't even take crypto company’s ads and third, what ad you're going to run, is basically going to send someone to an exchange to buy that crypto usually or to use it somehow.

So essentially it's a very inefficient kind of loop, which you might not even be able to run, as it tanks the price, you may not be able to run the campaign and you send them to something like Coinbase anyway. By contrast with Coinbase Earn, you take $1 million, $10 million, $50 million, $100 million of their crypto and the channel is crypto aware and the customer values that crypto at par, it values it at a dollar or frankly more than a dollar, because then you can go up potentially. Some of them do, depending on the timeframe or whatever. So this is something where you can put in $1 million and acquire a million users and train them in your crypto.

So Coinbase Earn has become the largest scale customer acquisition channel for crypto. All of these crypto projects are pouring in millions of dollars to basically educate Coinbase customers and they're taking their, let's call it monopoly money or what would be monopoly money and they're using it and they're expanding the audience.

Now you've got a million people who've got that coin, who've learned how to use that coin, who used it for a decentralized exchange or a loan, they've sent a private transaction, they've set up a smart contract or whatever. So there's a real market demand on this from the new coin side. From the user side, it is got the highest NPS of any Coinbase product, it's more than Apple NPS and we published some of the stats on that. The reason for that is, people are getting free money and we've got I think pretty high...

Peter McCormack: But isn't that the wrong incentive? Have Coinbase published the stats on whether people hold or do they just dump these figures?

Balaji Srinivasan: Actually it's a great question and I think we have published those stats, but I think I can tell you, because we were looking and were monitoring that very closely. For a typical campaign, it will be something like 75% hold, 10% sell and the remaining 15% buy much more and the thing is, when they sell, they can only sell $1 or $5 or $10 worth. When they buy, they can buy like $1,000 worth.

Peter McCormack: We're going to get into the ethics now, because could we argue that that's irresponsible as well? Because one of the problems I have trying to understand this whole world, I'm not from Silicon Valley, I'm from Bedford in England, I've got no experience in investment. I find it fascinating, I find looking at it fascinating, but a couple of things that I've noticed that feel unhealthy, is that we are turning a bunch of people potentially into VCs.

Balaji Srinivasan: Ah! I'm a huge fan of this, but I'll come back to why.

Peter McCormack: Potentially. I like the concept, but we're turning them into VCs in a specific sector, where most people will lose money and most people have lost money. We are yet to see any breakout long-term viable Blockchain project outside of Bitcoin. Now I know you might argue some back, but a great tweet yesterday, I saw somebody said "with Bitcoin you buy the dip, with shit coins you sell the pump." So I still think a lot of coins are seeing a negative performance against Bitcoin, even as Bitcoin's arguably in another bull market.

But anyway, we're potentially creating VCs out of a bunch of retail investors. But for most of these projects, they aren't getting the benefits of the VCs and they're investing in projects that haven't hit product market fit. Essentially I had Jill Carlson put it to me, she said when you do an ICO, you're essentially doing your seed round and your IPO at the same time, you've got one chance of fundraising. It's not strictly true because some people get the chance to invest early, usually VCs and they get their coin discounts.

By the time retail gets to invest, while there might be a short term pump, there's often a dump. So we're turning these people into VCs, but they're not getting the benefits of the VCs and they don't have the experience of the VCs. I have spoken to a lot of people who have lost a lot of money, so I worry that this is unhealthy and potentially irresponsible. That's why I worry.

Balaji Srinivasan: Great, okay. So there's a lot of stuff there, but actually I think I've answers to much of that or at least I've got a thesis on much of that. But let me come all the way actually up to root, which is from the perspective of somebody who's very sympathetic actually to Bitcoin maximalism, I'm very sympathetic to it, why have any other coins besides Bitcoin? Because that's like a root question and here's my take on it for what it's worth. I do believe we need a digital gold and I think it should be on its own chain. I think that by fighting this incredible war at 1MB, even if 1MB itself, one can debate or argue about, that meant that if that level of war was fought at 1MB, then 21 million is truly sacrosanct.

That is to say that by fighting over here, if this is that taboo, then 21 million is even more taboo, you don't change that ever. So there's like a rationality to irrationalities, if that makes any sense. So I think that having that immutable digital gold as the basis for this entire crypto economy, for something that the government can't seizer, that can't inflate, that can't print, I think I've been one of the earliest, I mean certainly not the earliest, but one of the earliest advocates in Silicon Valley and in tech, got a lot of high net worth people into it, evangelized it, have held large amounts, I taught this class in 2013 on Bitcoin among other things and got a lot of people into it.

So I've always been pro Bitcoin and always will be pro Bitcoin, so I want to just put that down. Now why do I think that there's more to life than just digital gold? Well, I think that it's like your change on a bicycle. If you have like a brick of gold, Bitcoin is not going to... Let's leave aside Lightning for right now, Bitcoin is not going to significantly increase its TPS anytime soon. So the smart thing to do is buy and hold, as it puts a minimum amount of traffic on chain, but there's other things you want to do in an economy. There’re stocks, there's bonds, there's commodities, there's cash and then there's other things that are like video game items and collectibles and all this other type stuff.

These things are transactions that just have different workloads and are different frequencies of use, on the different risks. So let's say for example, you do a gear change down from Bitcoin into Ethereum. Ethereum is, because of the DAO thing in 2016, because of the fact that it doesn't have a written monetary policy, you can argue it's a chain that is more mutable and has more risk than Bitcoin and that has a higher attack surface, all this stuff. I would agree with you on that. So if Bitcoin is suitable for storing billions and it's totally immutable, for something that is somewhat immutable, like your corporate charter, your corporate charter for example, you change it every once in a while.

There's a seed, the A round, the B round, the C round, you will occasionally edit it. It's a non-trivial process to do so, but it's not meant to be completely immutable. Every round of financing, every new person who comes on the cap table. So for a data structure like that where you're raising money on the base of the charter, you're editing the charter to accommodate the new investors, Ethereum is in my view a suitable data structure or rather a suitable host for them. This is a different use case than gold, like a corporate charter and gold are just not the same thing. Let me just say why is something like that is important. Well, I believe that the American state is going to put a ton of pressure on companies that are headquartered in Delaware.

I don't think that's today, I don't think it's tomorrow, but I think over the 2020s and certainly by like the 2030s, to be headquartered in Delaware, to be a Delaware C Corp is to basically expose yourself to arbitrary levels of acts by the US government. Instead, what people are going to want... So first of all, why do people incorporate in Delaware? They do so because it has the predictability and the experience of the Delaware Chancery Court. So if you have a dispute, some arcane kind of thing about, "oh, I had pro-rata rights" or "oh, you know, like drag along" or something like that, the Delaware Chancery Court has seen that a hundred times.

Whereas, I don't know, Minnesota's may not have. So for a Minnesota person, that Juris is trying to figure this out for the first time, whilst a Delaware person's like, "okay, it's like this in this case, we're going to resolve it this way." So people, VCs in particular, want to be a Delaware C corp because of the predictability of the thing. There's something however, that's even more predictable than a judge and that is a smart contract. Especially in this sort of trade war world where Chinese investment into the US was soaring and then it's kind of fallen off a cliff, Americans don't invest in China because they don't trust Chinese rule of law. Now the Chinese don't invest in America because they don't trust American rule of law.

But both parties can diligence a smart contract on the Blockchain and they can both invest in that and so that's how we get back global free trade in this era of trade wars. You can actually have vehicles that anybody from any country who speaks any language can read the code and ask exactly what it means and they can invest on that basis. That's something that I think will ultimately be shown to be superior to the Delaware Chancery Court, just the internationality of it. But what you also get, are benefits like programmability and automation, composability, so you can actually set up a vehicle like this and clone it a thousand times. You can automatically set it up, have it funded, and then tear it down and send out distributions.

Where if you've ever actually done that with a company, it's an enormous pain in the ass, like you have to send out all the wires and contact all the people and so on and so forth. Once you can automate something, you can do much more of it. So buying and selling companies becomes much more frequent, much more liquid, in the same way that you went from the PC to like virtual machines, you could automate the set up and tear down the machine, you got the cloud services. So that's just one example, one chain where Bitcoin for gold, Ethereum for these smart contracts in these corporate vehicles and that's quite useful, it's a huge chunk of the economy.

I think now you go further, something like let's say Zcash. Well Bitcoin is awesome, but it doesn't have shielded transactions by default. Zcash lets you send money with cryptographic proof and frankly actually a lot of maximalists like Monero, which has similar kinds of properties with the ring signatures. So in many ways, Monero has more traction and adoption among various kinds of communities than Zcash, it has lots of the guys in dark markets or whatever. I'm sure Monero people won't be happy with that, but there's legitimate uses of it as well. Zcash is kind of more of like your tweedy academics, but Zcash is genuinely more confidential than BTC is, with shielded transactions.

I mean, you've got guys like Chainalysis who are analyzing the Bitcoin Blockchain to try to de-anonymize you, so okay, now there's an argument for a third chain. You can basically break out more and more use cases like this and I kind of think what's going to happen is a poly chain world, where you have different chains that are just geared for different purposes in different communities and different financial instruments.

I think we need those, because some of those will be for social networks, because it's not just enough to keep your gold, you need to also keep your social account and you need to be able to keep all your stocks and your bonds, your commodities, there's all these things people are going to try to de-platform you from and we're going to need different kinds of chains to keep them. So that's my like meta argument and I can go into more detail.

Peter McCormack: Well okay, that's a good argument back.

Balaji Srinivasan: Then we get to VC stuff as well, this is justification for multiple coins.

Peter McCormack: But I wonder here, is there a conflict between your maximalist views and your VC hat on? One of the things that I've really kind of struggled with, going back to the point that there's this unhealthy situation where so many Blockchain projects have died, enriching founders and enriching early investors at the cost of retail investors without ever achieving a product market fit.

One of the things I felt we've missed in this world is bootstrapping. It's funny, researching the interview, there was your tweet that I replied back to that time where I was saying that the incentive model doesn't exist, there is no bootstrapping and it feels like retail has paid the price.

Balaji Srinivasan: So I think that is a very real, very legitimate and also very solvable issue, let me explain why. In venture capital, your term sheet and your so called definitive documents, the term sheet is a quick thing that you put together that has the major terms and the definitives are a longer thing that includes edits to the bylaws and the charter or whatever. These have evolved over a long period of time to ensure not just the short and medium term alignment of incentives, but also to anticipate likely kinds of disputes that might arise in the future. For example, vesting schedules are things that are in place, so that you know that like a co-founder doesn't just get 25% and then leave the next day and then you know now they've put in no work.

That'd be a defection edge case, like a prisoner's dilemma defection. So tons and tons of these terms are set up to avoid those issues and what I think is going to happen and is already happening, is those concepts from venture capital will be put into smart contracts. So everything that you mentioned, you can stop with just the appropriate terms in smart contracts and then what will happen is, savvy VCs and savvy retail investors will follow those savvy VCs into these better smart contracts. Let me give you some examples.

First vesting, easy to do. You can basically make it so that the smart contract shows that these addresses of the coin founders, do not get all their coins at the beginning, so they can't just dump it on the market, they're aligned with other people and they've got a long-term orientation, maybe vests over 4 years or 6 years or 10 years or whatever. So that's one. Number two, you could also have limits on how much they can move out of those investing accounts, so you have dump limitations. You can't move more than X number of coins or Y percent or something like that and so on and so forth.

Everything from pro-rata rights to drag along, whatever, all of those concepts can be encoded in literal code. In fact, I think we're going to get to an even better situation ultimately with that, because it's actually code. It's no longer ambiguous as to what it means, it's literally in code. Then you don't have to pay lawyers for every freaking financing round, they make $100,000 for taking templates off the shelf and filling in stuff. I paid a lot of legal bills over the years! You now just boom, use a template like off the shelf, a smart contract.

Peter McCormack: But that all exists now that you could do that now, right?

Balaji Srinivasan: I don't think so. Aragon I think is trying to do stuff like this and trying to make libraries for smart contracts and so on, but actually I was thinking of just doing a series of blog posts like this. So you start and you incorporate a toy company on Ethereum and then you tear it down. Then you incorporate and you do the equivalent of a seed financing and then it's acquired and then you tear it down and you show what the liquidations would be for each person. Then you start to build up to more and more complex examples, ultimately I get to public companies and I'm like, "okay, here's what proxy voting rights look like and here's the thresholds you'd have to clear."

It's actually awesome because a lot of that legalese is really basically an office gated program language and you put it into code and becomes very clear as to what's happening, how many people need to turn their private keys at the same time for liquidation to take place. For example, in order to do a series B round, you often need a majority of common and majority of A to approve the series B. So that's like a complex multisig that requires a bunch of folks to sign off and boom, a new share classes issued and new money comes in.

You see what I'm saying? So I don't think that has been done yet. I think it's very doable and I think that's what I was tweeting about, like we're in this intermediary stage between incorporating in the US and incorporating on chain, I think that's going to happen.

Peter McCormack: Yeah, it's funny, I'm not such a maximalist that I don't support ideas of people using systems to create better processes. I am not that. But I am very much in the maximalist camp in terms of, there are way too many Blockchain projects that have enriched people without deserve. They're people that have just created projects unnecessarily, I think there's been lots of people who have kind of promised dreams and ideas that haven't yet come to reality.

One of the things I worry is that, well I don't like the fact that a bunch of people have lost money, I think it's sad, but there's been little to no adoption on a lot of projects. I mean you talked about Zcash, no one's really using it to transact. Why is that? I don't even mind Monero, the maximalists, the real ones, will kill me for that. I think there's something interesting in there, but it's still not being heavily used. There is very little adoption. So do you think that the whole de-centralization, could it be a myth?

Balaji Srinivasan: So let me talk about that. First, in respect to adoption in general, I think that... So the entire tech industry, I also tweeted about this a while back, the entire tech industry over the last 15 years-ish, has been tuned on a set of metrics that are really for social networks; daily active users, utilization, adoption and so on and so forth. The interesting thing is those metrics, when they were introduced in like the mid 2000s, were actually looked at very skeptically and they were introduced because for early Facebook and so on, traditional measures of financial performance, profit/loss etc, weren't there.

So instead there were these things like daily active users or engagement or what have you and people were very skeptical about it. But now, that which was the insurgent has become the conventional wisdom. I argue that using the last generation's metrics to measure the current generation actually misses something very important. Let me explain. I think you can think of basically at least four thresholds for involvement with something. There's like a page view, viewing the site, then there's like a DAU, you've set up an account and you come back every day. Then there's a DIH, not a daily active user, but a daily inactive hodler, you haven't set up an account and logged in, you have bought and held the coin, you have made a financial commitment.

That's actually larger than setting up an account, which just takes a little bit of time and clicks. You've actually put real money at stake and you're hodling. Then I'd say the highest level would be a physical resident and I think that's where technology is ultimately going, like after crypto or like the next stage. But now the view from this standpoint, hodling and the number of hodlers, they are like dailies because they've still got their money in the thing and so many of these coins have actually been accumulating hodlers.

I can't tell you how many, because not all the stats are public, but you can sort of analyze it from addresses, we know some of that on Coinbase. So from that standpoint, adoption is very real. Lots of these coins are piling up hodlers. That's kind of one thought.

Peter McCormack: Yeah, but we don't know why they're piling hodlers. I hodl my Bitcoin for obvious long-term reasons. You are, I know a long term believer in Bitcoin, if you hodl for 20 years, you're fine with that. But I would question, is there anything out there that you would put a significant amount of money in and say, "I would hodl that for 10 years."

Balaji Srinivasan: Yeah, Ethereum for sure.

Peter McCormack: Anything else though?

Balaji Srinivasan: Let's see. So I don't want to get into recommendations of particular coins, as I don't want to pump anything.

Peter McCormack: But it can be binary. It sounds binary, but it's like Ethereum and Bitcoin and then probably nothing else?

Balaji Srinivasan: No, there's a lot of other coins... So here's actually a very important like mental model kind of thing. When there's a new company, a VC doesn't think of it as a shit co, they think of it as a start-up. Do you know what I'm saying? You don't think of something as a shit co, simply because it doesn't have the traction or distribution or adoption of Google.

You look at, could it have a niche, maybe could it get big someday, how big could it get and so on and so forth. So that's why, if there's a new coin and it's... I mean Bitcoin is the King of coins, it's 10 years old, it's got all the traction and so on in the world. If there was a coin that's like a year old and it doesn't have the traction of Bitcoin, that doesn't mean to me that it's a failure or a shit coin or something like that.

There are shit coins, I'm not saying there aren't. There's true scam coins and so on out there, but it'd be like calling every new company shitty, because it's only got one person in a garage and it's not like Facebook or Google or Amazon yet. That's kind of like one mental mindset number one. The second thing is, and this is very important, I think for maximalists, an enormous amount empirically of the demand for Bitcoin comes from the crypto economy, because folks are cashing out into Bitcoin.

Peter McCormack: I know, but I don't feel that ever justifies it though.

Balaji Srinivasan: Right, but I'm just saying that for that percentage of maximalists who are, what I call price maximalists and that's a significant chunk of the group, this whole trading economy, even if you think it's all Las Vegas, with Bitcoin at the core of it, that increases the demand for Bitcoin. There's absolutely no question about that, we see the stats on that. Any DEX or whatever, will tell you that, like "yeah, folks buy a lot of Bitcoin here because that's a reliable thing they come back to."

They even say, "cashing out into Bitcoin" because they know that is not going away. That's my of second point. Third point, and this something I've tweeted about and talked about, speculation is installation in crypto and here's what I mean by that. With Bitcoin itself, the entire speculative process is actually something where, I'm not sure if Satoshi intended it or if there was some emergent genius, but if you had tried to turn this thing into a step function, right and said, "hey, you have to put all your net worth into Bitcoin and operate in this crypto economy, which doesn't exist," nobody would have done it.

Basically, if you had to act as if Bitcoin was $1 million at the beginning, no one would've done it. So instead, what's happened is we've had this stochastic process sort of rise to greatness, through various orders of magnitude. During that entire process, people could buy and sell and belief would go up and down or whatever, but it's coming all the way up and eventually it'll hit like $100,000 or $1 million. So what you did, is you turned this vertical cliff into a series of approachable kind of steps and crucially, you also allowed dual boot.

You allowed people to maintain most of their net worth in USD and operate their normal life in USD and put some of it into BTC and then like just operate this whole way rather than demanding people have this immediate vertical step over. I think that same thing is true for a lot of these other coins. Each of them, there's some vision of the world where they've become successful. I think Ethereum is the closest to that and that's why it's has got five years attraction, it's 2014. Bitcoin is 10 years attraction, 2009.

Peter McCormack: Well let's talk about Ethereum. What is the Ethereum use case, because it was ICOs and at the time I actually thought this was brilliant. It's a new way to invest money and it's a new way for people to fundraise, I can get involved in things and oh look I'm making money and then I lost a load and then a lot of people lost a lot of money. Then I realized, you know what, maybe this isn't healthy. What was it, like $400 billion of retail money that has been lost?

Balaji Srinivasan: Oh no it's not that much. $400 billion? No, it's not that much. I think what you're talking about is, how much the valuations came down. But something can be valued at $100 billion, but only $1 million has gone in.

Peter McCormack: Let's just say billions has been lost.

Balaji Srinivasan: Sure, billions in nominal market cap have come down. That I would agree with, yes.

Peter McCormack: Okay, well still, a lot of people have lost a lot of money.

Balaji Srinivasan: You're also right that billions in absolute money has been lost.

Peter McCormack: But also millions, tens of millions, even hundreds of millions has been made by founders and some funds. I couldn't identify who, but almost certainly some have made them and some have certainly made that money by dumping on retail, that is something that if somebody did an investigation to, they'll certainly find examples of that. So it is unhealthy, it isn't great and if we look at some of these projects, even ones that may be listed on Coinbase or other exchanges, you would argue that some of these are almost certainly destined to fail.

Balaji Srinivasan: Well, so here's a very important kind of concept. Investing is never about guaranteed returns. The name of the game is there's a possibility of loss, as well as a possibility of gain. Reward is not certain, but risk is certain and this kind of gets to our earlier thing about how the internet is more upside and more downside. I do believe that people should be able to bungee jump, be able to skydive, be able to motorbike, be able to take risks and sometimes those risks will leave them in a better place and sometimes they'll leave them in a worse place.

Now, I also believe that you should have sites and organizations that provide star ratings and reviews and reputation. I believe in things like these contractual things we talked about where you have vesting schedules, alignment of interest, but I think that at the most fundamental, there were tons of people who called Bitcoin a scam in the early days and they still do. Lots of people still do call it a scam and they were wrong. Had they been able to prevent somebody from going and investing in Bitcoin, they would have prevented that person from getting rich.

So the same is true for so many start-ups. If you're in tech, for example, I may be the first, or at least I'm certainly one of the first investors in Soylent. My God, the amount of negative publicity that company got in the early days was just insane! But it's doing extremely well. It's a subscription business and it's worth... I can't maybe say, but it's worth a lot of money now. So like if your antenna are tuned for technology, lots of stuff.... I tweeted this actually just the other day, journalists writing "Google's toughest searches for a business model", "Facebook will never make a profit", "Amazon.bomb". So your biggest wins are often the ones that look bad at the beginning, because they're controversial and polarizing.

Peter McCormack: But history in crypto is slightly different and firstly, we're throwing people their first opportunity to possibly make these kinds of investments ever, in one of the highest risky, most volatile markers. It is dangerous, but I'm up for people being able to invest as they choose and to use their money as they choose. I don't like these investor accreditation rules, but I don't think we have the proper mechanisms for people to actually learn about what they're investing in.

Balaji Srinivasan: Let me just pause you right there. When you said learn about, that's actually the same thing that the customers are asking for with Coinbase Earn, they want to learn about it, they want reviews, they want ratings etc.

Peter McCormack: Hmm, I think you're learning about what the tech means, but I don't think they're learning about investing and risk management. I've met people who've been bankrupted by crypto. But you talk about, we don't call every company that's built "shit co", until it achieves something.

But I think because the failure rates is very different in crypto, if you went on CoinMarketCap, ultimately if you take all the Blockchains that have failed, sometimes how do you define failure, but we know there were coins in the top 50 of the market cap that have got no active development on them. So what I'm saying is there's just such a high failure rate on these projects, that they are super risky investments and I think it's just kind of concerning and not healthy.

Balaji Srinivasan: So what I'd actually compare this to is the dot-com bubble. The dot-com bubble in 99/2000 and so on, the sentiment around internet start-ups was exactly like what you're saying.

Peter McCormack: We have many from the early days that are still here.

Balaji Srinivasan: So let me talk about that. Billions of dollars were wiped out, lots of retail investors lost their shirts, massive bankruptcies like Cosmo and pets.com, webvan.com, everything that you're talking about, I can find probably a number of examples. There are few survivors, Amazon, Google, Yahoo and actually those alone justify like all the investment that went into it, because those few survivors are the thing that are obvious in retrospect big deals. But many, many companies raise money, they often raise money from public investors and they died. Now here are a couple of things that are interesting.

First is that led to about five-ish years of extreme skepticism around internet start-ups and so on. It's really, I think the Google IPO in 2004 that really did it. Second, even through the last 15 years, there's obviously the financial crisis in 2008, but one of the things that we observed as VCs, is a lot of journalists called 10 of the last zero bubbles. There's been a tech bubble or whatever, there was a huge narrative for the last 10 years or so and really there wasn't like a "popping", instead, we've just gotten more and more and more tech start-ups that are working.

Even if there's bankruptcies of tech start-ups and so on, the financing mechanisms have evolved to the point that you've got vesting schedules, you've got safe notes and so on, and you had to have all these train crashes to figure out how to not have train crashes. All these early pilots, aviation, automobiles, those things blew up and from their blow ups and from their accidents, we engineered them to not do that in the future or at least not do that at the same rate. So that's one kind of thing.

Second thing is I'm actually still super bull on ICOs in the long-term. They may be called something different, for example, in the late 90s and early 2000s people talked about active server pages or applets. Then it just got rebranded because it was not Java, but you did it with JavaScript and now you call it dynamic webpages or what have you. Although Dynamic webpages are broader concepts and always front end. So whatever the v2 of ICOs is, maybe it won't be called ICOs, I mean IEOs are sort of a v2 in a sense.

Peter McCormack: But they're exactly the same. It's the same mechanism, it's still a dump on retail.

Balaji Srinivasan: Yeah, but let me just analyze it from a somewhat different vantage point. ICOs represent the simultaneous disruption of venture capital, international wire transfers, crowdfunding and cap tables. So venture capital because the capital is coming from folks who are not on Sand Hill road, international wire transfers because it's coming from all around the world.

You're in Turkey, you're in Brazil, Japan, India, doesn't matter what your local laws are, with an internet connection, you can get into an investment. Crowdfunding may be obvious, but I'll make the point anyway, in 2015 a large online crowd fund was $10 or $15 million, by 2017 it was $4 billion. That's like a 400x improvement in just the amount of money that can be made around the world.

Peter McCormack: One example and it's EOS.

Balaji Srinivasan: Yeah I know, but still the point is that the record center in 2015 was Star Citizen. So that was the number one crowdfunding project of all time in 2015 was $10 or $15 million. The number one of all time in 2017 was $4 billion, that just shattered the backward of what's possible online.

Peter McCormack: Yeah, but it proved that you could move money quicker, that you could have more people involved, but I don't think it made anything better. I don't think we've improved venture capital.

Balaji Srinivasan: Ah, so here's my point. Forget about the specific projects that were funded, simply the fact of a 400x improvement in something over a period of two or three years, is an enormous quantitative improvement in the amount of money you can focus over the internet into something. That's kind of what I'm getting at. Maybe this project will succeed, maybe they'll fail.

The fact is you can now raise $1 billion on the internet! That's new and different and you could use that to build a city. You could use that for lots of other kinds of things that's not being used for it. So as a tool, as just a technological tool, it's a major innovation. Do you see what I'm getting?

Peter McCormack: I understand the innovation, the ease of moving money around it, that democratizes investment. But like I said, I think it's done on the wrong projects because why are there no breakout apps in crypto? Why is there no mass adoption? At least when you look at the early days of dot-com, there were people who were using pets.com, there were people using Webvan.

The problem that they had is they got the mechanics wrong in terms of the economics of the business. Actually what that introduced was the bootstrapping. The Webvan case proved that they invested too much in the infrastructure and they should really have just bootstrapped, so that proved that. But we are seen to have this problem in that this decentralization concept appears to be a red herring. It's almost like the innovation is in the backend, but the people aren't recreating the front end experience that anyone cares about.

Balaji Srinivasan: Well okay, let me take apart a few different things there. First is, lots of the dot-com ideas, were kind of just an idea too early. Webvan is feasible basically 20 years later with Instacart and that required widespread mobile phones and widespread familiarity with the internet and so on. So lots of those things that happened in the late 90s and 2000s, they worked in 2005 or 2010 or 2015 or 2020, but not right away and I think that'll be similar with crypto. Lots of the stuff that's been put out there, will work eventually, but maybe all the pieces aren't in place, number one. Second concept is, I actually think that some of the De-Fi apps are here.

So in particular the biggest one that I've seen that a lot of people are starting to use is interest, because you can get way more interest with something like compound and De-Fi, than you can at your bank. Now you're taking some risk there, but it's real. Folks who have had like $1 million or whatever in compound over the last several months, have made their 10% interest, I forget the exact number, you have to look it up, but it's way more than you'd have in a bank. That's a real application. That is something which is a significant amount of basically quasi free money, albeit with some risk of the chain or the smart contract. So interest is one.

There's a lot of people who are doing decentralized loans, decentralized exchanges, decentralized derivatives, decentralized prediction markets, all the De-Fi stuff, there's a site called ETH Locked in De-Fi, you may have seen it, the Mike McDonald site. All this stuff is up. Now there's always intermediate setbacks, but the traction for that is real and you can see that. Another application that I think is pretty darn important, the advent of stable coins, not just Tether, which who knows, there is always drama with Tether, but USDC I'm biased, you know we launched that at Coinbase, I helped lead that project and MakerDao, each of those I think fits different use cases.

Tether for the grand theft auto crowd, USDC is your banking compliant coin, which has probably maybe the lowest redemption risk and then Dai is actually very interesting because it's a "truly decentralized stable coin." The thing with Dai is, you can now build a banking interface in any app without a banking license, that's massively important! You can be an engineer in Nigeria, you can be in Colombia, you can be in Turkey, Russia, India, wherever, if you have an internet connection, you can set up a US dollar denominated interface in your app, that uses Dai on the back end and you do not need a banking license from the US.

That's a massive breakthrough. It's like equivalent to making everybody into a publisher on Twitter. You're just taking something that was extremely locked up behind armed guard basically and have anybody be able to do it. So I actually do think the applications are coming out, but I'd say that hodling is really like the most important application because it speculates a future into the present. By hodling, you boost the price, by boosting the price you gain attention, you gain the resources to actually build those apps and it might take like 3 or 4 or 5 or 10 years to build.

Peter McCormack: What is it that the maximalists are missing then, because they are so determined in their view that everything that isn't Bitcoin is a shit coin. I agree with them almost entirely and the different use cases are more obvious. Something like Bitcoin Cash has no need and to me that is a true shit coin. Something like Brave, Brave to me is a true shit coin, nobody needs to be making donations with a volatile coin that has no liquidity. That really was a tool for them to raise $7 million.

Balaji Srinivasan: Okay, so let's talk about this. So first do you know the war of 1812, are you familiar with that?

Peter McCormack: No. I feel talking to you, like I've not read anything!

Balaji Srinivasan: These things are hooks I use to remember things. So the United Kingdom and the USA were still on the outs during the war of 1812 and the UK actually burned the White House, they were still mad at the US and it was not a pleasant time. 107 years later, their ally during World War 1 and World War 2 and they have the special relationship of basically the 20th century. Maybe that's breaking down or whatever in some ways, but for a long time, nobody really cared.

Maybe people in Britain would say the colonies or whatever, but nobody cared about the fact that there was a fight in 1776 or 1812 like a hundred something years later. That's because these countries kind of occupied their own niches and so on. What I think is going to happen, I'm not saying for all coins or anything like that, but these coins, they have their communities and they differentiate and they adopt different use cases and what have you. So for example, Litecoin's marketing is the test net for Bitcoin.

Peter McCormack: But that is bullshit! Bitcoin has a test net.

Balaji Srinivasan: Maybe so, but basically the live production test net with real money or whatever and you roll out features like SegWit. I know Charlie, I'm friendly with him, I have no beef with Litecoin or Charlie, I'm just saying that that is where that has kind of evolved. Then with Bitcoin Cash and even BSV or whatever, well BSV, we can get into that. What I think happens with a lot of these coins is if they survive, they evolve and one of two things happens.

Either they just truly have no raison d'etre whatsoever or they just start occupying niches that the other organism or the other chain doesn't or can't or won't or whatever. I think that's actually good and I'll give an example of this, which is actually, Benioff used to say this, he's like, "choose your competitors carefully, because you'll become a lot like them.”

But the opposite of that is Uber and Lyft sort of differentiating marketing wise. Uber is like the sleek black car and then Lyft is like the friendly kind of thing. Each existence polarized and so the market kind of opened up like this. Another example actually from the early days of my first company Counsyl...

Peter McCormack: From a dorm room!

Balaji Srinivasan: From a dorm room, that's right! So at the time, genotyping like DNA testing was a technology and in theory from an academic standpoint, when genotype somebody you could get their [Inaudible] and for their immune system, the genes of immunity and for their hair color, eye color, ancestry, all this other stuff, you could genotype all that at the same time, the technology was uniform.

Eventually what happened though is we focused on the medical, that is to say we went to clinics, we were covered by insurance, we were published in peer reviewed papers and so on. We went and really focused on the medical genes and 23andMe focused on, and they were forced to by the FDA really, to focus on ancestry and all the fun stuff.

So you know the technological platform is actually very similar, the niches that they occupy and all this stuff that grew around them, was very, very different by the end of the day. We were like a medical product that was acquired by Myriad Genetics last year for $375 million and 23andMe has become like an ancestry fun thing that Elizabeth Warren takes to prove her Native American ancestry or what have you. So the same technology results in very different niches and I think that's going to happen with crypto as well.

Peter McCormack: I still sit and look through and see that there's little to no adoption. One of the most important things for these cryptocurrencies is to have some form of liquidity and it's almost non-existent in so many currencies. So I wonder whether there is... I don't know, how do I put this?

Balaji Srinivasan: What do you think about BNB?

Peter McCormack: BNB, I personally wouldn't invest in it. So the thing about BNB, you get benefits of being a trader for trading shit coins by owning it. So essentially it's like the King shit coin to trade the shit coins. It's obviously delivered a great return for a bunch of people, but as you know, what Binance need is a constant supply of new shit coins. If it doesn't have a supply of new shit coins, ultimately it's going to lose trading volume and ultimately then people aren't going to trade there and then the BNB is going to have little value and it's going to drop in value.

So I think the IEO has been the temporary restoration of that. But I do think... I'm looking at where's value creation? At the moment I don't see much value creation. I just see a lot of projects and a lot of talk about smart contract platforms, but I don't see value creation, I don't see usage and that worries me. I personally think it's unethical to put the trade of these, on to essentially creating VCs out of retail, who really are out of their depth. I think it's unhealthy.

Balaji Srinivasan: Okay, so let me speak about two things there. I think if you look at the ETH lock down De-Fi stats or like DAP Radar or things like that, De-Fi Pulse, I think the traction is actually starting to be there for De-Fi. I mean you can make real money with interest and I think that's a major application that that's there. But let me talk about your maybe more fundamental or different point, which is, should retail investors become VCs? So I actually think, yes, and I think this will actually on net be very much for the good worldwide and let me explain my thesis on this. People talk about the 1% and the 99%, I actually think in the future, the 99% will be capital and the 1% will be labor.

Why do I say that? Because everybody in the world by like 2030 maybe 2040 at the latest, will have their phone or the equivalent thereof and be able to tap and invest in the equivalent of a literal crypto Twitter, like projects scrolling by and you can put in $1, $10, $100, maybe the dollar has hyperinflated, maybe it's Bitcoin you're putting in or a fraction of Bitcoin. So you scroll through, you invest money and maybe you make money, maybe you lose money. But it's like liking on Twitter or retweeting on Twitter, it's infinitely liquid.

You can review who else has invested, sort of like a combination of Twitter and AngeLlist in some ways. AngelList will show you who else has invested, when did they invest, maybe how much did they invest? You can follow investors, you can invest behind them and ride behind their diligence. Those kinds of things actually help novice and retail investors because they can be like, "well Naval invested in it, so it's more likely to be legit."

Or "Peter Thiel did, it's more likely to be legit", you sort of outsource your diligence, this guy is doing technical diligence, you're just doing social diligence. So it's like a lower threshold. I think that literal crypto Twitter will be one of the most predictable applications of crypto, that's just taking all of this stuff we already know that exists, we know people are basically doing this already and just putting that into an application, I think there'll be a very big deal.

Peter McCormack: So current retail investors in crypto right now, they're collateral damage for a future better system?

Balaji Srinivasan: Sort of! So this is something like, do you know the Gartner Hype Cycle?

Peter McCormack: Yes.

Balaji Srinivasan: So the Garner Hype Cycle is fine. There's something that Carlota Perez... You should read this book or at least be familiar with it, it's very, very important. Fred Wilson, Chris Dixon, a bunch of my friends, colleagues are into this book and she documents that, not just the dot-com bubble, but every major infrastructure bubble including those that are out of living memory now, railroads, automobiles and so on, going back pretty far, had this sort of pattern of technological trigger, huge hype, massive over-investment, lots of people lose their shirts and then there's this period of sort of cynicism or whatever. Then there is a rise towards the thing actually eventually working and being scaled out. I forget the name of the book, but Google her name, Carlota Perez.

So what I see with crypto, the reason I don't think of it as Sui Generis is, I'm like, "yeah, this is how it always happens." This is how the internet happened, this is how cell phones happened and sometimes you get like multiple waves and patterns. Every Bitcoin surge and crash, we're on basically like the fourth version of that basically. Every one of those, what happens is in the surge, you bring in tons of new money and then you do weed people out, but here's the interesting thing. What you teach them in the weeding is loyalty.

Naval had this good tweet a while back when he was like, "Bitcoin is a scheme for deposing tyrants and dictators, dressed up as a get rich quick scheme", because it looks like get rich quick. But if you try to get rich quick, you will get poor quick! So really the only way to actually make money in this space, is to a have long-term thesis and hodl. So it's interesting, it's sort of mapped to our current era, where everything is get rich quick and fast and instant results.

So it sort of maps to that and attracts people with that, but then it pulls them in with loyalty and eventually the only way you actually make money is loyalty. It's also not just loyalty, it's intelligence as well. Obviously, you have to have a long term thesis on something, as being totally alone, will only get you so far. But that's kind of how I think about that.

Peter McCormack: I'm conscious of time, but I haven't asked you really much about Coinbase. I naturally do want to ask you a few things and then I'm going to let you go! So obviously you were a very interesting appointment at Coinbase coming off earn.com. You were seen as a Bitcoiner and great for Coinbase. It wasn't the longest tenure, a year was it you did?

Balaji Srinivasan: Yep.

Peter McCormack: Could you tell me what your vision was when you joined? Obviously you joined as CTO with the earn.com acquisition, but it was clearly a bigger role than CTO, because even in your LinkedIn, your accomplishments, they're way beyond a CTO. So that's fine, but what was your vision for Coinbase when you were there?

Balaji Srinivasan: Sure. So I do think I did a lot while I was there. I think if you talked to Brian, Emilie, Fred Ehrsam, Fred Wilson, just ask them whether you think I did something there. So here are the major things I think I spearheaded. So first is with the Earn integration where the Coinbase Earn integration, which we talked about already. That was a big deal for acquiring customers both for our coins and for Coinbase itself and for our customers. It was a win on all three dimensions. That was a big one, with several hundred million dollars in contracts signed. The second related to that, was several of the Earn engineers and I were the nucleus of a team that recruited a bunch of crypto engineers and rebuilt the back end of Coinbase.

So up until that point, up until when I joined Coinbase only had four coins, Bitcoin, Bitcoin Cash, Litecoin and Ethereum. Three of those are basically Bitcoin like and the fourth is Ethereum. So it didn't have a capability for adding new coins rapidly. It was very much like this one major effort years ago to add Ethereum and then after that it was just the same infra. There were quite a few new rails and coins coming out, some of them by very accomplished computer scientists. We don't know if all of them are going to work, but you've got Turing award winners and folks from Technion, Cornell, MIT etc, these are legit people who we consider are at least worth listening to.

So the company needed the capability to add a bunch of coins and so what we did was, we turned it from something that took 8 months, into something that took 8 functions. So we Lambdafied it, I'm not sure if you know that term, but AWS Lambda is a service for function as a service. So there's certain kinds of things like for example, create sign and broadcast a transaction that are sort of generic between chains and then there's like create a shielded transaction and so on. So we abstract it out like these common functions and then now once you implemented those functions, you could implement bindings and swap in a new chain very quickly.

So that was the second major thing after Earn, the second major thing was rewriting the back end, built a boom, snap in a new chain very quickly. You started to see that over the last 12 to 15 months, Coinbase suddenly added a bunch of new coins and chains. I know the maximalists didn't like that, but our customers loved it. That's a big part of I think what's kept Coinbase not just relevant, but... Go ahead.

Peter McCormack: Was there a pressure for that though?

Balaji Srinivasan: From our customers?

Peter McCormack: Yes, from your customers, but does the pressure come from customers asking for it or does the pressure come from the fact that you know these customers are going to be on Binance, you know they're going to be on Kraken and they're going to be on other exchanges because you don't have them.

Because there was previously a very conservative approach to adding new coins, there was a framework. That seemed to go out the window. For me, it looks like, you joined April 2018, Bitcoin had dropped from 20k to sub 7k, we were entering a winter. Coinbase still managed to raise another $300 million on a $7.7 billion valuation, which you were instrumental to and you helped with the deck.

That's obviously going to come with pressure, a $7.7 billion valuation, there is clearly revenue pressure and you clearly have lost customers to Binance. So I'm guessing that... I mean this is where I want to get into the whole world like, how do VCs work? How much pressure comes from the VCs to say, "look, you've raised $300 million, your revenue is dropping. What are you doing for this?"

Balaji Srinivasan: So I can put your mind at ease on that, because there are certainly other situations where VCs or whatever, will put pressure on a company, but Coinbase is actually in the strongest financial position probably of any company in crypto by probably a good margin. The pressure was really from our customers, to respond to the customers. Again, I'm not saying that VCs never pressure a company or what have you, that definitely does happen at times, but that's not what happened here. This was something where I don't know how many tickets, but tens of thousands, probably hundreds of thousands of customer tickets, were basically yelling at us, "why have you not added these coins?"

Every time that we'd add a coin, there'd be a surge up in positive reviews and NPS and so on. You're operating a business, you have to listen to your customers ultimately. The flip side of it is actually again, I'm a big Bitcoin proponent, I've always been a big Bitcoin proponent, but a lot of businesses that will, I'll give you an example with Expedia. This is a long time ago, but I think it's representative. Expedia went and added the ability to buy tickets with Bitcoin to its site and this got a lot of praise, but no purchases. I think a lot of stuff is like that where there's a huge gap between express preference and stated preference.

There's what do people actually do and what did they say they're going to do? Sometimes it's the same; "I'm thirsty", I say I'm thirsty and I drink water or I say I don't like asparagus and I don't eat asparagus. Other times off diagonal, "oh I hate Uber" and I call an Uber or "oh I love the charity" but I don't donate to charity. So you see the full two by two and just one of the things about crypto is, the people who buy crypto on Coinbase, are not the people who are tweeting.

There's 30 million people, actually it's now more than that, so obviously most of those like 29.9 whatever of those million people are not active on crypto Twitter. It's only like a few hundred people who are active and big on crypto Twitter!

Peter McCormack: I wonder how many were asking during a bull run because they liked Coinbase, they liked the experience and then post bull run they possibly perhaps regret...

Balaji Srinivasan: Well, so actually this gets to an important point, which is one thesis about Coinbase is that it exists to help its customers make money, in the sense of, why do you go to Google? To find information. Why do you go to Facebook? Okay, connect with friends. Why do you go to Twitter?

Well, I'm learning about what's going on in the news or searching in my interests. Why do you go to YouTube to watch videos? Every great company can be summarized in one, kind of almost reductive sentence and then you expand that and expand that. Fundamentally, why do people come to Coinbase? To make money. That's really what it is.

Peter McCormack: I've never felt that about Coinbase. Do you know what, I used Coinbase for a long time, way before I ever started working with Kraken and having a certain loyalty to them. I was a big proponent when everyone was hating on Coinbase, I was like, "come on, they're the top, they've got the hardest pressures, they've got the hardest job." But I never thought of it as that.

Balaji Srinivasan: Here's the second half of my sentence; to make money over the long-term.

Peter McCormack: I've never thought of it. I just thought, I go to Coinbase to buy crypto.

Balaji Srinivasan: Right, but before crypto has a use case...

Peter McCormack: It's like with YouTube, I don't go to be entertained, I to go to watch videos. So with your first examples, you've talked about the function, but with this you've talked about the potential outcome.

Balaji Srinivasan: So you're right that basically there's two different things that are kind of side by side, which are, have you heard the term like the job you're hiring the company to do? You buy a Slurpee, but you're buying it to be entertained on a long trip or whatever. So the function of Coinbase is to buy crypto, that's the functional thing. But the purpose or what have you is, because you mentioned this earlier, your kind of indictment of ICOs or what have you, maybe is too strong or whatever, but your criticism of it was, "folks lost a lot of money, therefore illegitimate, therefore bad."

The flip side of that is also the same. The most positive customer reviews come from those people who've made the most money. They are the ones who end up recommending it to others because, "hey, I made money on this thing", it's a positive example for them. So then the question gets into, and there's two different ways by the way of making money. There's like the day trading, Bollinger Bands, technical stuff or whatever, fine. If people want to do that, more power to them.

However, that's not my style of making money or what I believe in. I believe in making money over the long-term, because I think that's more predictable also and it's less scammy or whatever. So make money over the long term. What does that mean? Well earning crypto, if you can offer tasks, now people have zero money at risk. They're just making $10 for doing something.

Peter McCormack: Yeah, but you could argue, it's like, "if you want to learn about crack cocaine, you need to smoke a little."

Balaji Srinivasan: Well I don't think it's quite like that.

Peter McCormack: But it is because what you're doing, is you're giving them free money and then they're going through the process of getting the free money and learning to sell it. Then there's time to think, "oh well I can buy more."

Balaji Srinivasan: I see your point, but I mean earn in the broader sense.

Peter McCormack: But also because with this stuff, I think it's a fine line between investing and gambling.

Balaji Srinivasan: So it's interesting you say that because basically like... So let's say there's three kinds of gambling. There is negative sum gambling, which is you're gambling at a casino and you might make money, but on average, the odds are against you and the house will win. There's sort of like zero sum gambling, which is like gambling with your friends, dice and cards and so on. There is like positive sum gambling, which is VC, where ideally you're both creating. You're investing in something and it's Dropbox and it creates value for the world and it's unambiguously positive.

What's interesting is public markets investing is actually more similar to zero sum than positive sum arguably. It's got the positive sum aspect of providing liquidity, so there's something, but many times it's like, the growth of the company is topped out and there's a winner and a loser in the trade. It's not like the thing is just going up like this. So all of those things exist in society and I guess I believe that folks should be able to take that risk if they're smart enough. But I want to come back to this point about earning for a second. Yes, one kind of task is to earn for letting people learn about a new coin.

Other kinds of tasks would be like completing a survey, responding to an email, and now you've actually just done labor for the thing and you've earned it and then of course you can spend it. The point is now no one's putting any money at risk. They're coming up from a zero basis, it's pure positivity and if you can get a million people to earn $10, that's positive.

So trading is one way you can earn, ideally buy and hold or make money, earn is now a way where you can make money, a third way is interest, getting money on interest and so on and so forth. So you'll start to see Coinbase adding ways to make money for the long-term in the crypto economy with all these different kinds of instruments and techniques to basically give people a positive experience.

Peter McCormack: This is turning is my Rogan episode because we promised two hours and we've done two and a half. I've actually got to go and get a flight back to LA. We'll definitely have to do a follow up now because there's so much we haven't covered! I do want to ask one more question, it's quite spiky! How unfair is the comment that Coinbase hates Bitcoin?

Balaji Srinivasan: Totally unfair. Me, Brian, I mean like everybody on the board are large holders of Bitcoin, I should say everybody. I can't speak for everybody's individual positions, let's say every fund is a large holder of Bitcoin, early backer or Bitcoin. I think there's a time period where pretty much almost every major Bitcoin CEO, remember you're talking about a Bitcoin CEO. You're talking about like Voorhees, Armstrong, Jihan or whatever, like 2017, these are folks that are not just like normal Bitcoin holders.

These are people who put their life savings, their career and their family's money, all the stuff on the line to go and start a company around Bitcoin in 2013 or 2012 or 2014 when it was certainly not popular to do so. For these folks who were way, way, way out there on the right tail of like support for Bitcoin, a lot of them were trolled into oblivion, I mean they're not dead, but like trolled endlessly as being enemies of Bitcoin or what have you, like evil people, bad people, etc.

What it reminded me of actually is like the Bolsheviks versus the Mensheviks, Monty Python would make fun of this, right? They would split and they'd split and they split some more and the Maoists and the Marxists Lenists would be at each other's throats over really minor doctrinal differences relative to like the broader scope of things that they agreed.

Peter McCormack: I will have to pull you up on that one and you've picked some interesting people there. So firstly with Jihan, who I would separate him totally. I mean, personally fuck Jihan. For me he tried to destroy Bitcoin, so he's separate. Erik I think was on the wrong side of history on the New York agreement. I like Erik, I'm friends with him, I think he's a smart guy, but I do think he was on the wrong side of history of that. But actually what happened with the New York agreement was an attempted corporate takeover of Bitcoin.

We don't know how bad that outcome could have been. It could have been very bad. I mean the code failed! That was a very risky time and I think one of the things that potentially has been very difficult for, I'll let Brian answer himself, but there has been a support for the contentious forks, there was a delayed... It took a long time to get SegWit activated.

There was support for the New York agreement, they seem to be a big push for Ethereum, the adoption of Bitcoin Cash, I'm just saying here's lots of things when you start piecing them together, it's a long way from the world of maximalists. Now, the one thing I will add into that is, you are in a very different world as a hodler maximalist who isn't contributing, to somebody who has a business and they're trying to grow it.

Balaji Srinivasan: Exactly.

Peter McCormack: But I think you become conflicted. I think if you're trying to grow a business, you potentially become conflicted of what you think is right for Bitcoin versus what you would've thought if you just had a day job and were a hodler.

Balaji Srinivasan: Let me make three or four points on that. So the first is kind of from our earlier point that a lot of the demand for Bitcoin these days, maybe more than 50% of it comes from crypto trading in general. So that's something where I'm not sure a lot of folks have taken that on board, if they're Bitcoin price maximalists, but it's an important kind of thing.

Peter McCormack: Important for what reason?

Balaji Srinivasan: Well important in the sense of what they think is against their interest financially, is actually for their interest financially. One way of looking at that by the way is, I don't know if you saw this recent thing where a number of maximalists invested in this company based on an ERC-20 token.

Peter McCormack: But again that's misleading because they're not maximalists. Okay Charlie Lee works on Litecoin, Fluffy works on Monero, Samson Mow has been involved in projects outside of Blockstream and I think WhalePanda will trade shit coins for Bitcoins.

Balaji Srinivasan: Fine and I'm actually on reasonable terms, I'm not like attacking or anything like that. All I'm saying is I think you will find a lot of profess maximalists, actually do have other coins and in fact many will kind of admit to that if pressed. That's kind of one point. But it's more that Bitcoin as the reserve currency of the crypto economy, actually gains value from that crypto economy. I think that'll be a very obvious point in five years.

Peter McCormack: Do we know that definitely though? Because we had price discovery when it was just Bitcoin. Mt. Gox had price discovery, it had trading, do we know that we wouldn't have more traders just trading Bitcoin?

Balaji Srinivasan: No, what I mean by that is, Bitcoin is a reserve currency of all these exchanges. Bitcoin is like the thing that every exchange supports. So every other coin is sort of paying tribute to Bitcoin by being tradable back and forth in it. Let me call it just one piece of the argument that I think that does give a lot of demand for it. The second thing is from a philosophical standpoint, this is to me, I can sort of understand the wartime mentality of this. In wartime, sometimes principals have to go out the window, you just have to win or whatever. But if you're like libertarianish, the economy is not zero sum.

In fact, that's like one of the fundamental fallacies you're arguing against as a libertarian. Wealth can be created, everybody can have a smartphone, everybody can have food, like wealth can be created versus the mentality of, anything that's not Bitcoin is bad. Another example is if you're in crypto, if you're in Bitcoin, well you know that there's a lot of problems with the Fed and its unaccountability and printing all the money and so on. But how can you be anti-Fed but pro the regulatory State, like pro SEC, pro this.

It's the same freaking animal! So I can identify many contradictions like this where I don't think that it's coherent to be "libertarian", but completely zero sum mentality with any other coin respect to Bitcoin, thinking that the SEC is like on net, a good actor. I don't believe that. I think that it's a captured regulator, like every major regulator is at least partially captured and it's not something that's on the side of innovation, that the folks aren't democratically elected.

Whether you subscribe to an electoral or market theory of accountability, these folks who have career tenure, they both weren't elected and they can't be fired. So how can these institutions be legitimate? Yet you see people who are "maximalists" trying to push people in front of the train and get them in trouble with the regulators and I just don't understand that.

Peter McCormack: Well there are conflicted ideologies and there are all hypocrisies in that. I do see that. I have recognized that because they are people who talk about free markets...

Balaji Srinivasan: And you've been trolled.

Peter McCormack: Oh fuck loads, relentlessly. I accept it, it is what it is. I deserve it sometimes as well. I do think there are some hypocrisies there. I'm not even sure how I can crystallize it, but I'm not sure we even addressed entirely my point. At the same time, some people have been on the wrong side of history with Bitcoin, so there is holding certain opinions, but I think the closed room, New York agreement for Bitcoin, for SegWit2x was a very dangerous time. I mean I still can't comprehend it fully. I still haven't understood the weight of it, but I think we can look back now and see that it was a mistake.

Balaji Srinivasan: Well, so here's how I kind of think about that. So another person that you didn't mention was Stephen Pair of BitPay. Pair posted this graph where his company was paying soaring amounts in fees they were on the hook for it. So for lots of CEOs, this was a bottom line issue coming out of their pocket on a daily basis.

Peter McCormack: But that's the point. We're getting back to the goals and the needs of the business, over what is best for Bitcoin.

Balaji Srinivasan: Okay, so let me come to that point. Many of the CEOs felt that given that they had millions of Bitcoin users who were using their platform, that they were sort of, at least somewhat legitimate in terms of spokespeople for them, because these folks had chosen to use their platform. So that their voice represented not the opinions of one person, but in their sense the collective opinions of their hundreds or thousands or millions of customers versus one guy tweeting. That's like the mental bottle. I'm not saying it's always right, but I think there's some argument for it. Here's my take on the whole Bitcoin civil war or whatever, I haven't blogged this or whatever.

But I actually think two libertarian principles came into conflict there and I'm actually glad that we have two chains. So let me explain. So the BTC side, the whole point for them was an immutable digital gold that neither the State nor corporations can seize, they can't mess with, no closed room, cigar smoking kind of session could change this. They won because they got a digital gold that could basically be completely mutable and by fighting at 1mb, you make 21 million sacrosanct. I understand that, I agree with that. I think a currency that's not printable or seizable by the government is a very important libertarian principle.

On the other guy's side, from their standpoint, they're coming at it from, if there is an unjust group that has control, that has a majority and you're a minority that wants a different economic policy, they got into Bitcoin because they didn't like the Fed and they wanted a way out and now suddenly they had a monetary policy that was being imposed on them that they didn't agree with, that they felt was hampering the growth of the system, because they thought, "hey, well how are we going to get more transactions, we're going to have a cash like use case."

So from their standpoint, the libertarian principle they were invoking was exit, which is the right of any free people to leave and to do something. So I actually think both of those are actually legitimate libertarian principles. So I'm glad that you had two communities come from it that could just practice their own thing and then maybe they both succeed. Maybe only Bitcoin succeeds and BCH doesn't. I'm a positive sum person so I wish the best on everybody, but I also try to empathize and try and figure out why does somebody who's on the other side of the table, think something different from me.

Peter McCormack: It's funny you should say that. I've actually spoken to a number of maximalists in private who weren't fundamentally against the fork itself. If you believe this should be different, if you've got different ideas, go and create your fork. Actually the main issue is the co-opting of the name, which isn't great and also the misuse of bitcoin.com which has been used to mislead people and create confusion, which I actually think is probably more net negative for Bcash. I think if they'd had a separate name, they would have been able to... I think tricking people into thinking it was Bitcoin, which it isn't, is just a dumb move.

Balaji Srinivasan: It's interesting you say this because basically, remember how we talked earlier about, there's kind of dogmatic libertarian theory and there's reality, for example with the free lunches and so on. So the thing about crypto is, it's set up for people to be able to fork, to go their own way to doing this. But you know the one thing that can't be forked, the name. So the name can be forked. So that was actually where the battle was and in fact, actually the most arguably centralized two components of the system, namely the miners and the developers, were the ones that were at loggerheads the most.

Everybody else because they were decentralized enough, they didn't mass enough to even be able to say anything back. There's was a lot of squawking on Twitter, but it wasn't like a coherent kind of thing. People talk about polls of users, but there were a thousand different ways to do that. So the name couldn't be forked and actually this is something which gets to kind of a deep point. Again, this is one of these... I wrote all these blog posts during that time, but I didn't put them out!

Peter McCormack: We need them out man!

Balaji Srinivasan: So I should put them out there. But a really I think interesting and critical concept is, a chain derives value from its backlinks. So for example, there's folks, and these are no-coiners and Bitcoin haters or whatever, who would say things like, "oh, anybody can fork Bitcoin. So the 21 million limit is not really there" and so on. That has a superficial like truth to it, but it actually doesn't have a deep truth and the reason there isn't a deep truth is every exchange, every wallet, every piece of software out there, has a pointer effectively, either implicit or explicit to the current Bitcoin BTC Blockchain.

To accommodate some other chain means another code path and that's work in the same way that adding a backlink, you know like a link in the Google sense, is work. So you can think of the value of chain being all the backlinks that come into it. Now because Bitcoin Cash, BCH was based on the same code base as BTC, it was relatively easy for somebody to add a backlink, but A, they had to add it, which not everybody did and B, they may not have wanted to add it.

Again, not everybody did. So it had a much smaller set of backlinks than BTC did. But this is actually a big part of how I think of the invisible defensibility of a coin, is the pattern of backlinks and no-one has really mapped that. But I think it'll be an important thing to do in crypto world.

Peter McCormack: All right, well listen, I'm conscious of the time. I'm just about to actually look at my phone, because I have to go get a flight! We've officially made one longest ever show! I think we could at least have done another couple of hours. I've hardly done any of my questions.

Balaji Srinivasan: Was that interesting?

Peter McCormack: Fascinating? Actually, I came in this morning to talk about Coinbase and Bitcoin and I knew I had to, but actually I've got to say that first hour where we talked about virtual reality and those worlds, that was the most interesting part to me. Hopefully we'll do this again, I'm sure we will. I'll hopefully do it a time when I haven't got to get a flight, although I wouldn't want to use up so much for your time. But listen, thank you for coming on.

Balaji Srinivasan: Thanks!

Peter McCormack: We will definitely do this again and yeah, let's catch up soon!

Balaji Srinivasan: Thank you!