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Cryptocurrencies: Irrational Exuberance or Brave New World?

Anna Irrera
Fintech Correspondent at Reuters
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Milken Institute Global Conference 2018
April 29, 2018, Santa Monica, USA
Milken Institute Global Conference 2018
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Cryptocurrencies: Irrational Exuberance or Brave New World?
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About speakers

Anna Irrera
Fintech Correspondent at Reuters
Bill Barhydt
Founder and CEO at Abra
Alex Mashinsky
CEO at Celsius Network
Brent McIntosh
General Counsel at U.S. Department of the Treasury
Nouriel Roubini
Chairman at Roubini Macro Associates LLC

About the talk

After peaking near $20,000 at the end of December 2017, Bitcoin's price collapsed by more than 50 percent at the start of 2018. Other cryptocurrencies have experienced similar volatility, and the share prices of certain publicly traded firms have shot through the roof at the mere mention of "blockchain." Similarly, the initial coin offering market surpassed $5 billion dollars in 2017—a 2,200 percent increase from 2016. Are these the signs of a bubble ready to burst, or are we witnessing a paradigm shift in how companies raise capital? What are the most interesting things happening in the cryptocurrency space, and where are the true investment opportunities?

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correspondence at Thomson Reuters, Anna Irrera Good morning, everyone. Thank you for your joining us. Let me start off by introducing our panelists. We have Bill barhydt the founder and CEO of Abra Alex mashinsky the CEO of Celsius Network Brad McIntosh general counsel at the US Department of the treasury and nouriel roubini the chairman of roubini macro Associates in a professor of Economics at the stern School of Business. So it's definitely been a very eventful year in the cryptocurrency world. We seen Bitcoin go up to $20,000 in December. It's now a

tumble to have less than half that we've seen companies often with very little track record. Go online raise hundreds of millions of dollars from strangers is showing them new cryptocurrencies. So we now have $1,500 in cryptocurrencies out there in the wild in at the same time Regulators are starting to step in to figure out how to handle this and whether this new asset classes a security or a commodity so we have plenty to talk about and we have very different. On the final temperature is going to be very Lively. So I'm going to start off with a very general question. Can you guys help

us figure out what happened? This year is it this is beginning of a new asset class or is this just like the mother of all bubbles. Do you want to start Bill? Sure. We see this all day since ever is a retail investing application for cryptocurrencies are take is is that the asset class is so nascent effectively. There are almost no sellers right now. The people that I know that are super long Crypt or simply not selling and so if you look at that the order books, right? I mean, it's basically driven by volume of fires and that's the bottom line, but it's

so new right that I expect that this kind of volatility is going to happen for literally the next 5 to 10 years. And after that the utility of cryptocurrencies will usurp the Spectre. But if nature of cryptocurrencies and then things will start to change but we need the liquid the emerging Equity that that's happening. We need that now but effectively you had institutional money coming in in Japan and Korea in relatively small amounts cuz it's the new space and that created a a spike which created a bit of a Euphoria in the US and in

Europe and then when that you forget that before he died down obviously the price settled down but it was so dramatically higher than where it was early last year, but by and large, like I said, the number of people that are holding far outweighs number of people that are in a willing to sell at this point. I'm going to go to Alex and then we're going to move to the north coiners does the crypto fifo call them? They have crypto and non crypto, so it's easy. So so we see cryptos just the foot soldiers

of the battle between centralization and decentralization. So you're 500 years centralization, which create The largest company we've ever seen North many of these companies are larger than countries. If you take the bottom 50 countries Apple of Google bigger than them and in their earnings and their GDP and so on. So do you have the the situation where the Crypt the world is just representing that opportunity presenting this new possibilities and enables people to participate. So you have this Mass adoption right of people like people opening people trying

to open accounts, but they can't right. If you looking at a lot of the provider's they're opening and enabling people to open your accounts only a few hours a day because there's so much demand to come in at the same time Banks and other institutions are restricting people from come in by blocking the use of credit cards and so on all these things of skirmishes over the future of decentralization. So I think that there was anything that goes up must come Down but as more and more people about joining the crystal world. You will see prices continue to go out because of supplies

fixed anything where if you have fixed Supply you have more demand that we know what that's going. Well, I would just sent a little bit from the thought that were the no crypto side entirely from the government's perspective or not. Yes crypto or no crypto. The government has an interest in and where there is a responsible and viable use cases for blockchain for cryptoassets encouraging American companies to be in the Forefront of that and then to bring the dynamism of American technological innovation to that space

on the other hand. We the surest way to keep to prevent widespread adoption and use of whether it's blockchain or where there's cryptocurrencies is to have it be a place where investors are not safe to have to be a place where it's a safe haven for illicit activity. So We're somewhat more Tech neutral and ambivalent then then I think the characterization and write something as negative as they say you're spreading spot which is fear uncertainty and doubt and you are no coiner. There's a problem with owning a

crypto assets when you're in the government is the conflicts in the cleaners out of spreading Taj interest in any crypto asset currency blockchain. We can take out a median or can go to see it. I'm not going to make it either way. So I'm not talkin. My books like at 99% of the people in this in the street. And the last time I actually friend was telling me this joke and inside how you do you retain an employee. That is a tricked-out. Legionnaires and the answer is you wait a month. And that's the answer of exactly

what happened this year because literally last fall I remember when I was going between Thanksgiving and Christmas people that don't know anything about sinus. They don't even know the difference between stocks and bonds respectable zero financial literacy. Everybody was coming to me. I should I buy Bitcoin. Should I buy Bitcoin? I guess what I went from 5 to 10000 + 20,000 and then once people realize this was a much bigger than a babbling you what happened to the soccer team about 20,000 lost it all because you know, when down all

the way down to six thousand and I was floating around between 6 and 8 depending on the day in the week is highly volatile in song. So this was the Bible in like in the typical Bible at the ones were I've lost to the party of the Shockers that are taken by stores and give a bunch of inside of the cell to the soccer at the Pekin now it's clogged. Right now he's not moving sideways for months. So is Bitcoin any one of these cryptocurrency a currency currency something to be romantic and I couldn't see if you're going to call and let you know. I still have three functions as to be a unit

of account has to be a means of payment and has to be a stable store of value. There is no good or service that is priced into Bitcoin. First of all is not a means of payments and that the technological concerning natural is the most important whether you taking Bitcoin how many transactions per second you can make even the block size five. OK Visa. 25 thousand per second OK or ethereum 7 1700 currencies are going to resolve the problem is the problem is that Cozy Central and you cannot ever the same

time scalability security and the centralization and the reality is always talk about decentralization is just bullshit bullshit because all the solution that I've found so far to the problem of scalability going from pipelines Axle Repair sagging means that which one is never going to be a means of payment imply acid concentration risk and centralization and therefore no security Bitcoin miners control 55% of the remaining the top three minor of ethereum control 61% of the mining company world,

we control 25% of the mining of Bitcoin and 40% of aetherium 151. You're going to be having that fax again essentially disrupting tarses the right. Collapse of the system this thing tearing. This is becoming a massive concentration in the concentration of increasing the oligopoly power than mine or becoming bigger for Technical and technological reason. There's no the centralization is just bulshit. So decentralized me secure. Can you tell us how you really feel about it or

somebody else? Can I respond to this movie before? So in 1994? I was one of the first guys to write void protocols and Road the original patent for voice over IP voice of Arby's the largest the centralized application that exist today anyway, Are paid for the voice calls recently back in 94 used to close $3 a minute to make a phone call, right? So the internet this is the largest decentralised application when no one controls any of it, right? The cost is almost zero you have two companies that

provide the service of worth what's up is gets off the 20 billion dollars having zero and revenue. So everything the real just said is completely irrelevant through this example. Okay. So what are we saying about Alexis fix a moving from the void portal to the moist moist is money over IP and Satoshi Nakamoto is the first guy to put together all the Necessary Technology do Nable us to avoid double sped meaning if I send you a picture and I can keep the original is nothing wrong with it. But if I send you

$20, I cannot keep the original. So basically that was very difficult to do the minute. We solved that then we Nable not just digital currencies dollars at the chapel. But also cryptocurrencies where anywhere on the planet no matter what the borders are what the laws are can transfer anything to anyone else. Now, if you think about boyfriends add essential AS application where everybody has access to it that cost nothing everybody benefits. Okay. No one is losing everybody's benefit the same applies to more so the banks and financial institutions just have to adjust to a world where the

cost of transaction is 0 + companies decentralised companies, like albarossa Celsius can provide the service for free and are trying to make or create value somewhere else play what you mean cuz it might become. By saying that your companies are decentralized if you're the CEO and you have staff and so forth and there's big companies a lot of discussion and companies like Ripple and even is cerium. They have a problem. Okay there right. There are the only exception but maybe elaborate a bit on this decentralization.

All right, so Niners concentration cuz that is a big guy that worked on the creation of SSL. It Netscape started mobile banking services where I work with Regulators around the world and I can tell you with absolute certainty 100% certainty that cryptocurrency to solving problems that can't be solved any other way than with the cryptocurrencies such as users and 75 countries that are able to make investments for the first time using Abra application that they couldn't do before

Global money transfer which Now using second layer Technologies and smart contracts can scale to Visa numbers. Okay using cryptocurrency zanaty centralized model consumer asset Finance rights of Foxconn just made investment Avril to enable large-scale consumer electronics purchases so that you can make lease payments in Emerging Markets. Using this kind of second layer cryptocurrency technology payment stuff that Everett navels because making the payments cross-border any other way was simply too expensive. These are applications that simply can't be done any other way but crypto so

we can all laugh at BS and all that nonsense, but I'm telling you that 6 billion people are going to be using crypto the way they use TCP IP today the weather like in this is not that pay everybody's going to have to see my Bitcoin. I see my ripple it it's nonsense, right? You can see dollars rupees rupees pesos and Yen and you're going to be using crypto in the background, here you use Netflix, give me about the Raging. I know you won't use Netflix. So when you use Netflix, you make a TCP IP connection to a server number wounded that that most of you have no idea what that means. But

that's good that you have no idea what that means. Cuz if you had to know what that means use Netflix, you wouldn't use Netflix Bitcoin and crypto Tech is going to work the same way. You're going to be using crypto. Point technology to move money make payments to use credits in applications like a bird out of hundreds of thousands of users across dozens of countries and you won't even know it's right. It's the same evolution in terms of decentralization of information which was with the internet was meant to do and now the decentralization of money and do stuff without mining the

centralization is utter nonsense. The fact that there are small number of companies that are making the chips is one thing because yes, the Asics that are used to optimize mining have advantages for companies that were early in the space. But the number of people that are buying access for minors maybe a relation of Bitcoin basically everybody competes every few minutes in the Bitcoin Network to solve a simple math problem and that math problem gets more complex.

The more people are trying to solve the problem which is why Bitcoin kits Created at a fixed rates, even if millions of people are trying to solve the math problem. There's certain types of computer chips Asics that I've been created specifically to solve this problem and there are two or three companies that are really good at Creighton is Asics, but that doesn't mean that there are two or three companies that control mining there two or three companies that make the chips. Anybody can mine and the truth is is that mining right now is massively to centralize and there is no way to do a

51% attack on the network without spending hundreds of billions of dollars at this point. That's suggesting that there is a massive inflation mining. Okay, if you want to go Siri say whatever you need. The scientist with supercomputers Concentration study decentralization is just false reminder that is massive and greater concentration day by day. Akon's first one second We're talking about the centralization and money being controlled by minors and money now is I guess controlled by governments, right? So it from from the government's perspective and I

guess you have insight into why governments around the world feel like can there be totally centralization of money supply in does this make sense now. Yesterday we had six sitting on stage all of them deeply involved in the industry and the consensus was that they had no prediction as to where we were going to end up in 20 years. So where this all goes, I don't know and I don't think the government knows and I don't think we can today. I don't think anybody here has great certainty on where

we're going to end up. That's sad. One of the things were concerned about another governments are concerned around the world about is that there are certain enduring technology-neutral imperative that we believe whether you're talkin. Cash with your traditional electronic payment systems or with your talk about crypto assets need to be validated and and and respected. One of those is that we we oppose and want to choke off flows of illicit financing. So we do not believe that merely because you put

crypto in front of the word currency that money laundering is acceptable or that Narco traffic isn't acceptable or the funding of terrorism is acceptable. We do not believe that merely because an asset is a crypto asset that it is not touch why are sanctions regime. So for example, the Venezuelan Petro we put out guidance on that. It is subject to our sanctions resumes II of the Imperatives is investor protection because as I said earlier, there's no better way to prevent widespread adoption or use them to make it unsafe for people to invest in these

spaces. So whether it's the SEC or the cftc or States or other governments with homework or dating to the G20 it we believe that it is essential oil and imperative that we have investor protection rules, whether its initial coin offerings or Bitcoin future products on exchanges or what not. We think it's essential that those technology-neutral imperatives apply equally here and we agree with all of that supports anything but we'll just we'll just said so we're all on the same page. I don't know if it is true

though that we're the ones who get invited to the milk and contrast. Can I make a comment on The Descent rosacea because the issue is not that the Late Show. Is it today if you if you want to make a deposit do you want to make a transfer you have to use a bank there was a decentralized institution. It's not about it's so there's no alternative right right to you. When you make a deposit with the bank the bank you lucky if they'll pay you 2% most most of you probably getting less most of Outlet getting less than 1% right and then they take your money that it's not their money to

your money and they landed to the person that steal their credit card. They charge 25% So and that's why because they're too big to fail right there do monopolies in the banking system have created such a situation that because there's no alternative. No one can do anything else. So part of the cryptocurrency is an exchange medium, right? It's it's the store Valley and exchange medium. Those are the only two things that. And in the end part of what it does. It says you don't need it back all of us if we agreed to what everybody has in terms of coins. We can exchange value between us which

then could be translated into dollar. So so this is not about replacing the dollar competing with a dollar. It's about bypassing the banking system and still being AML kyc compliance and still not not doing anything illegal, but creating an ultimate platform again just like a VoIP is an alternate platform to the TDM Network that became a monopoly AT&T is to make 90% of its profit from International voice right today, but they make zero out of that. So what we're saying is the future looks very different than the past and in the future banks are not going to do what they did today. They're

going to have to find a different business which science let's listen to Elevation. You can send money to any person on the planet without any way you can take any car. You can take any coin out of those 1300 coins. You mention send it to any person on the planet that has an IP address without any Exchange in the middle. Everybody is using exchanges. We're not I'm not here to tell you that exchanges are decentralised. That's not the point point and then you can tell us how it works. I mean I got sell your thing that in the future Guitar Center lights

and you were talking about how Banks who do we Sue? Right? Cuz the idea of I mean there isn't the banks are concentrated. But also it's because of Regulation is concentrated on them and it doesn't necessarily mean that it prevents them from doing anything wrong as we very well. No, but in the future when stuff goes wrong and the end instead of having a bank that manages your money something else fails by 10 years was created not a single Bitcoin wallet. So I think we're shooting on on the on the blockchain

that's runs. The Bitcoin protocol has never been broken nothing to do with cryptocurrency Reckless with their private key, or they put it on some centralized exchange, but anyone who kept their wallet, okay and kept turkey safe never got nothing ever gets stolen. We know the banks are getting hacked and stolen from every day, right? They just cover their own losses and the industry is moving from centralized exchanges to decentralized exchanges from mining to proof of stake. So this is a young industry and we have the answers

that just going to take a few years to get there. But I don't see any problem with scalability. I don't see any problem with security and I don't see any problem with this becoming a replacement for the financial system. Now, he doesn't replace the dollar it just replace how we transact with each other. I think the people this year that joined the crypto craze are the people that came in and December November worth where they coming in because they believe that there is this promise of decentralization or was it, you know, the headlines and Promises of instant riches. Are you a bit concerned

or art? Do you think it's just part of the So do you think everybody's in because they they understand perfectly what this is about cuz it seems pretty complicated in the fifties, which is very different than exchanges. Right? So I have a very different perspective on this that you basically store how much Bitcoin your promised to until you decide to withdraw to an external wallet that has nothing to do with cryptocurrency. You can do that with baseball cards. You can do with postage stamps you can do with stocks you can do with Ponce de queso storing cryptokeys in a central location is

a really bad idea has nothing to do with it. What they wake her up. There was meant to be used second. We believe that as I said earlier crypto is going to end May 4th of currencies are going to a naval a whole bunch of other applications. We've just launched the first of these which is what we called decentralizing. Using smart contracts to give consumers investment exposure to NES a class that means using our smart contract system. You can invest in stocks and bonds. You can enable a consumer in Ghana to buy an Apple stock where there's no physical delivery in Apple stock. They simply

get a smart contract using cryptocurrencies which gives them investment exposure to that stock. Right that wasn't possible for small dollar poor farmer investors in remote countries before Abra. So the utility of cryptocurrencies hasn't yet been realized what the liquidity that the Investor's bring is absolutely necessary to make these systems work and institutional investors really haven't even started coming in yet. Right. So if you think about what happened in December, and yes, there was to your question. There was some Euphoria around small retail investors who saw a

small number of institutional investors in Japan now looking Coming to the space and so if traditional institutional investors start putting one to 3% of assets into cryptocurrencies, what do you think is going to happen. What do you think if Institutional Investor starts coming in and putting money in this and we've seen exchanges Echo CME Futures and completely changing Financial Services. What is based on three things is based on AI machine learning

deep learning on one side big data and internet of things and is going to revolutionize payment assistant credit allocation insurance and asset management to guess what 0/0 to do with blockchain. Okay Circle payments Goldman just wait three hundred million dollars today that he's already paid studies WeChat pay their is venmo is PayPal. 3 Square just to name a few things that are used by visions billions of people with very low transaction calls and has nothing to do with blockchain. So why you guys going to blockchain because that's not the future There's A

revolution is not the blockchain and that's the thing Tech Revolution. Your problems are scalability security and decentralization cannot be resolved. But I'll agree with your utopian Anarchist each of us on our laptop little wallet and have left to remember if my grandmother came along and the centralized that essentially exchange. Is that a dollar? Bankatsecurity as reputation-based Deposit Insurance. A Crazy Cart is being hot in a second. I made hole for the full amount while when you're forever

and I will take another car. Cuz I'm a start of it goes beyond my purview. I think that's the one thing I do agree. That is that we have not yet seen the Netscape moment. Right? We haven't filled the killer app encrypted. So what what where we seen this Cambrian explosion of innovation, I built this more money going into crypto startups, then all the Venture money. I'll put together right? So why is that all these people are stupid all these people Venture in total in the last quarter more money went into career field in all venture put together and the quarter before that to

to why is so much money floating into this area because it is the next big wave now some people don't believe it. I might be 95. Everybody told me I was crazy and you couldn't do hope you can put voice on the internet. That would be crazy. What are you talkin about? I have to dial to get in there. Right? So so the issue is is not about that. The issue is if we don't have a killer up yet. We don't have a killer out that most people in the Can press a button and use and say wow, the experience is so much better, you know, just like we talked about before if you have to type

a TCP IP address that your header and figure out what how to make VoIP work. None of you would be making any phone calls. Right? Any anyone here has to type anything we use WhatsApp with Skype or anyting anyone who knows how VoIP Orcs anyone to guys. All right. So so most of us don't need to know what the hell that works to make it work. So we haven't gotten there yet with crypto. I agree with that but it's coming right it took us 5 to 10 years for the internet to kind of figure out what are the killer wraps and then we took it out. It was Amazon and Netflix not foreign

and travel reservations right off 95. So so we are going through that transition, you know, so we we we have some guys doing illegal stuff. We're going to shut that down. We have some guys using it for the wrong purposes. We going to stop that but as an in, History, this is the future and this is just another asset class. It's not going to be a hundred percent of assets, but it's going to be 5 to 10% of assets. And that's what we talkin about always at 5 to 10% of figuring out stuff and trying to find the killer application. How do

governments protect protect investors, but at the same time are not too heavy on that so that they kill all the Innovation right? But that's tricky cuz you said it was going to happen. So how can you regulate if you if something is no one knows that's very fair question and it's really the I was going to say the million-dollar question, but I guess it's the million Bitcoin question. Stepping back when we think about how we're going to regulate something. We made a commitment last year that when we're going to think about financial

regulation. We're going to do it quarter to seven core principles. We favor more consumer choice, we think regulation should be properly tailored to their purpose. We will hold not just regulated parties, but The Regulators themselves accountable for their actions, and we believe that when were taking actions to regulate American companies. We should be doing it with an eye toward us companies Global competitiveness. So when you take those things and you look at how that applies here, you you you have to have you recognized the interplay between the need

for regulatory certain day and the fact that no one is ever pleased with the agility of the government when it comes to regulating especially fast-moving Technologies. So there's got to be a little humbleness on our part while having due respect for the the values. I was talking about earlier in terms of Turn off Phyllis FNAF investor protection and we need to do it in a way that's coordinated with our International Partners. I'm so uncoordinated frankly across the federal government because it's it's all too easy to have kind of vulcanization of how we handle things and so

my boss the the secretary has in the context of the financial stability oversight Council can be to work in group of the various financial and capital markets Regulators to ensure were talking about the rise of crypto assets and how we should be monitoring the rise and how we should be reacting until you see reactions here and there you see the the SEC talkin about if an Ico has the Hallmarks of a security then it is a security from their perspective. If it needs that the age-old test that the Supreme Court are laid out in 1946 for security,

then it is a security in similarly the cftc. And in 2014 said that that cryptocurrencies are Commodities and so if you do a derivative in a cryptocurrency that a Futures Contract that you are subject to the jurisdiction of the cftc similarly as we discussed earlier, if you if you are a wallet or an exchange that touches us jurisdiction. You are subject to our money laundering kyc rules so that you know, what work we're taking it and they deliver it and coordinated fashion Booth across the federal government with our partners International.

So how much are enlisted activity happens now interview mention terrorism and how much of that happens on on crypto and is in is in crypto more traceable with a blockchain. How good is the government become a fair question not going to go. How could we are tracking? I will say that presents presents challenges and upper. Remedies for tracking because if you look at the blockchain, it's actually perfectly traceable. The problem is you off and don't know who's at the end of the chain. So, you know, it presents a

different challenges from from cash or other electronic transactions, but it also presents different opportunities for us, you know, you know, I can buy a quickie on my shoulder. I can lend money bones are alone. And I know that I am in there taking over there that Capital stocks are these guys are totally skirting every Securities Law based on a white paper fold a paper where there's nothing behind it is not a good not the service notice offer. They say I'm going to do in ICU and absolutely

have absolutely no right. It says that 81% of all I see are already in out scam. It's a scam 61% of them already gone out of business and just the other day. Cheddar man decide if I'm looking at all these different cryptocurrency. The only one that I looked at the doesn't look like a security is Bitcoin because it was created decentralized. Even the second the third one. Henry look like a security let alone every other one and guess what I co-signed you skirt and it's some point

there is to see in this year to see where to crack down on this comes and have not done it yet through an Ico. And I know that you you came after their the warnings from from the SEC. So and I know that you had to do it differently than the early I feel so I guess you have you control your perspective of someone who's first I would say that in the first wave of the internet 95 mm / 95% of the company's went out of business. That's just a normal way things work. That's not like So saying that 95% of crypto companies are going to go to business. Yes. I agree with that cuz there's a lot of bad idea

than any innovational wave. So we we have a fence and registration. We have a r a n d registration. We following every law as necessary in the United States because that's what you have to do. If you are operating here, you have to follow every lot 59 dolls in an Ico. We closed it a month ago did US investors. We need to record registration, which is what you have to do. We do the fence and registration cuz we touched money that moved overseas and Salon in and we think according to the lawyers we doing everything legally. Now, I did seven I'm a founder of seven companies before

Celsius right did all of them succeed now some of them some of them did not so good right there. That's just how work. That's how the world works right? So here. Yes, I wrote a white paper and yes, I published it. And yes the community 15,000 People downloaded and said we love what you're doing. Here is some money build it that's what this is about. This is not about people contributing and say, oh my God, I'm going to make 10 times their money. This is like the centralized booty right? People are saying well it is think about it. Right? I'm not talking about the speculators. I'm

talking about people from all over the world to called me and said Alex build what you saying? Are you going to do that? Are you going to give an opportunity to the disadvantage of the people that don't have a chance the people who do our existing banking system cannot move ahead. Can I join the middle class? And that's what this is trying to solve. This is not just about Speculator this the speculators elector they come and they leave the guy and the right now we seeing a wave of all these tourists leaving but like we talked about before the people that are here for the long-term the people

who are here to change humanity and to save it from itself, or are you for that reason and I know they're Skeptics and the people that don't believe in anything and if you look at the why the Is so careful about over regulating this and I plug the SEC in the cftc and everybody else because they are giving everybody an opportunity is because they see the good side of the bed. So I don't we all have to control them out so that we all have to manage that but if we don't then it's ours to blame. It's not that we cannot blame anyone else,

but him I should old are all the credit older. I can see some assets. There's some computers there's some pop and there's actually very active business of trading patterns of failed adventures in song and I've something I have a claim on and off security laws and I-80 right 00 you allowed trading in some of these tokens. I got issue tri-co. So what are what is your perspective on regulation now your base in the US you have some concerns. Are you thinking of the listing some of the coins adding some? No, sir, we run. So the

front end for app is a very simple retail investing application near anybody can use it put in the background. What we're doing is extremely complex. We tracked you enable 25 cryptocurrencies for exchanging buying selling and investing in the app today. But we track all of them have them in our market-making system because we're actually using Bitcoin smart contracts to give people investment exposure to all these assets and where the counterparties contracts and so are market-making system tracks literally hundreds of these assets and that has been wonderful side effect is it tells

us what's Liquid what the spreads are how many transactions per day are happening across all of the exchanges needs countries and it more or less spits out of formula to us to say which of these currencies are suitable for inclusion in the app. Now that's not justifying everything we say, okay great put in the app once it comes out and there's probably 50 or so that make the cut today even though there's $25 in that once it comes out the other side week. To my chief compliance officer to say, okay go talk to your contacts at this firm is firm is firm and dig in and tell me if there's

any reasons why we shouldn't be including this currency in the app and so far every currency that we've included in the app, not only has gone to that process but it's been padded with enough kind of tracking on the liquid inside to know that even in the DOW market we had it wouldn't become delisted for liquidity reasons for even for you. No change in security perspective. I like them sitting here giving you investment exposure. You're holding private keys on your phone with Abra. We don't hold anything from the half of the consumer. I'll just be clear what this is

and this is also a misnomer about what they clean is. It is not an asset class again today. It's programmable money. Let me explain what I mean by that in the Ever After you're actually getting smart contracts that tide of programmable money and I do think you're holding a private key on your That is giving you an investment contracts in between ETF but you're holding the ETF in the case of Abra. We are not holding anything. So we're not a you know, when a managing Securities on your behalf and holding Securities on your past tense decentralized. Well, that's a different

Securities regulation for all of the SEC cftc fence and all of them and we've been very careful about making sure the average was architected. The way crypto was meant to be used and let me come back to that point crypto is Bitcoin mined specifically it is programmable money. So last week I had the honor of spending two and a half hours with the new chairman of the Central Bank in Mexico the bank of Mako and he explicitly called me in to say hey, we're having all this conversation cuz we don't really understand cryptocurrency

nvnn. We were told that you need you should help us understand this. So we did a 2-hour whiteboard session and the comments that I got at the end of the meeting was my God. I actually didn't know. Datacoin could do all of these things meaning. I didn't know at its core that it was actually software that when you're actually moving Bitcoin, you're actually executing software right ba these Miners and that these pieces of software and Mabel will be call Smart contract with yourself executable programs on the internet which enable things like the investment contracts that ever has which are

incredibly complex with the consumer doesn't see that they just see that they're holding dollars or Ripple or Bitcoin or either whatever using the smart contract but in the future, it can be stocks and bonds other asset classes. The program will money in Navy pier to pier money transfer Naples retail payment that massive use a scale. So once they dug into this they said well this changes everything from our perspective. There are 300,000 investment accounts in all of Mexico middle class is shut out from investing using this technology. We can integrate Bitcoin into the banking system

have to fast of Both Worlds with low cost retail payment low cost. What are Ecommerce investment exposure into US Stocks which are impossible for the average investor in an ETF model? We had no idea was it, I got that any of this was possible because everybody is focusing on the damn price. You mentioned that you had you followed the rules that you thought that your lawyer said you needed to follow up with that wasn't the case with many of the ice fields of the really big ones that happened over the past year, you know, some somebody's 200 million dollars from

people online. They didn't do any kyc whatsoever. They didn't register anything. So, you know I said he start up there's a risk that you say that they might fail. So do you have any concerns both of you with that? There might be just a natural point where all of these company the majority of these companies go Boston people are left with nothing in that will kind of ruin it for all of you. If there weren't either some kind of fines or other actions against people who were early in the Ico space. So Gay people didn't understand what they were doing and they were doing things. They probably

shouldn't have been doing. Okay. It doesn't mean that there's a problem with the structure of doing an Ico. You can actually make an Ico function the same way as a security you can have dividend payments. You can have lockups you can have certain shareholder-rights all program did the smart contracts, right? So it's just that we chose not to do that in the first generation to be smart contracts because you know, it was quick and easy. That doesn't mean that that's the way it should be done. We didn't shut down TCP IP, and it should you pee because a bunch of companies went bankrupt

in 96 because he ain't that what you see. When we we follow kyc rules, we would get wasted every person that they wanted to contribute to a from all over the world and I'll just from the right and there's a lot of the SEC supposedly should look at letters to companies that didn't do any of that. So been in a lot of it is hey you you didn't follow the rules go and do it didn't say hey shut down gif. The money back to your investors the way China did that's what that's what China did they said? No, ico's give all your money back and they went to the

bank and said if you touch any crypto money or do any crypto transaction, you lose your license, right? So I think we are much more Progressive country that that enables and knows how to balance Innovation and risk management, right? So so they'll put Unity here is too big for us not to participate right? I mean you seeing countries all over the world passing specialized regulation to invite all these companies to be domiciled in Malta and and Singapore in and give otara and Estonia and so on so they just announced then, you know, the Bahamas just announced the deal and so

on so we don't want all that capital and all those opportunities leaving the United States and moving to any of those countries. I think finding the balance is not easy, but I think you know that the the killer apps the great applications the good intrapreneurs are going to separate themselves from all the bad idea. Then there's a lot of bad ideas right I get asked. Everyday to be an advisor or participate or invest in projects and I say no because a lot of these are bad ideas. You know it would you give a 5 or 10 million dollars to a 20 year old that's what we do every day in this world.

So so most projects are three 20 year olds from Russia who have a new crypto protocol or Avenue or whatever and most of those are going to fail. So we're not talking about those we talkin about is TCP IP here to stay that's really the question. It's obvious. He sounds like a ridiculously mute question in the internet world, but that's all we asking are we asking is is Bitcoin any Syrian which represent a certain type of cartography right and serve the top of rails on which many things could be built. Are they good or bad for society? That's really what we talkin

about. Let me ask one more question on on this side and then we're going to open up but so let's separate blockchain the technology one second from the cryptocurrency. So for the government, do you does it have to put Mental disorders streamline some of your operations or even taking it to the extreme in bringing back the crypto. Could we see like a crypto dollar like a digital form of us to the the use of blockchain again back to yesterday's panel where we end up in terms of what the the real

viable responsible use cases for blockchain is I think is is up in the air and it's very possible that there will be applications that will be very useful to the government. Use you hear people talking about them periodically in terms of property ownership were yesterday's panels were talking about boating. So is it possible to certainly possible? That's what I kind of stay tuned message. As for the digital dollar, I think you know, I would associate myself with the the comments of Dale Dudley from the New York fed made with her that it was widely premature to be talkin

about that at this point. There is some possible use skates for distributed Ledger Azure blockchain or no kind of entity Supply chains or for someone that would separate the blockchain is a technology from cryptocurrencies and crevasses Nico. Secondly, love you even blocked train. He's a bit of a overhyped technology with a plan Revenue profit. And so now I've nothing to do with blockchain. I don't think that we never need then we can have a public the centralized that blockchain because the scale of stuff that you have to store in the

public way doesn't make sense. Is going to be to centralization there's no way that all that decentralized stuff can be held in small computer just doesn't work and you know that uses are going to be uses that are going to be with private or semi-private blockchains. And what's the difference between a semi-private blocks in a private blockchain and a glorified the Excel spreadsheet is just variant of the same. You know, how many corporations have lots of internal activities and I don't do I have all my transactions on a public library. Why would I want it and who cares about

that? And what's then a private blockchain is just another fancy database of one sort or another but is not a decentralised world in which everything is done in a peer-to-peer the centralized anarchic way and even those applications so far. We're not we're not seen them in the only application of blockchain so far as being in a Bitcoin and Bitcoin is not scalable any theorem is not scared of that's why you have the force that you have. That's why you're fifteen hundred other at times. Scalability and so far every solution to descale about leads to concentration and

centralization and is not secure and that's why you cannot talk at the same time security scalability and decentralization. Let's open up know how many more examples should I bring? Let's have a question. I would appreciate a long-winded question, but I would appreciate nothing. I'm interrupted. Irish good luck. I respect everything that you've done. I'm the co-founder of Akamai Technologies. I have invested in more than 70 early-stage companies over the years including Google Seagate and Spa the ones you

would know and I hear you talkin. I most of the people in this room don't know how to invest in cryptocurrencies. They're here to learn more that you read the negative by lines about the theft in the money laundering in the drug dealing We solve the problem similar to your speed of the network problem with our company back in the day. You couldn't serve a lot of web traffic without the sites going down and there many many new platform is now developing Technologies to solve the problems that you talked about today. But that's part of the evolution of being an

entrepreneur and Craigslist New exciting companies. Add a reminder to most people in the room. Most people who are not in the technology world back in the day doubted the fact he will give their credit card to buy books let alone cars online and all the doubters in this room today, should recognize that real companies are going to be crate on the blockchain to the Future. This is here for the rest of our life the top of this conversation Verizon crypto-currencies and having lived through the.com Meltdown our company decrease 99.8% of our market value.

It was way over valued is allowed and most is crypto-currency, I agree with Alex but I've known for a very long time are going to have a very large Rises and Falls, but there are some real world Technologies built on the blockchain into your point every major Venture firm those including Andresen and other companies that are funded Ness Bape and Google are all pouring billions of dollars into this. Market this also very real problems, especially in a lot of the third world countries where devaluation of

currency is a major problem and it solves a problem. No one has talked about that problem. We're all waiting for more regulation to solve. A lot of these problems. Most companies are raising our are trying to comply with legal regulations as utility tokens. I also have a legal background. I don't think that works most lawyers think that works. When is the government going to say these tokens are not utility tokens. There are securities, which will bring some massive stability to Market that greatly needs it. You know, that's fundamentally. It's a question for the

SEC and German Clayton has stated that when he looks at all the icoc. You said he hasn't seen one that he thinks is not a security. Stephen Curry's. Yeah, but they never going to do that because they're going to want to have the flexibility to decide who to find who not to fine. It's not going to happen. So I think everybody needs to accept that their Securities and move it to a hammer. Everything looks like a nail and right now all you have to do is not be the nail sticking out. Are there lots of nails sticking out? I think from the previous

one here at the front. When the mic is sorry. She lets can we have the one at the back right at the back? She standing up in the UK, but we know what they've been very clear. Will they legitimize certain infrastructure players so that we know how security tokens will come to Market are there an independent Commission? Cancel that that the the problem is that the line between what's a security and was not a security as not being really tested since of how we test

in the Supreme Court or in any major testing and industry has moved dramatically since right. I mean, we've developed a hundred different things. So what needs to happen, is it the courts after this is not an SEC decision my view in cases in the courts that are in the federal court. That's not going to be enough. I think the Supreme Court needs to decide if we are living in the new world in in the society needs these things which are not Securities or not. So so until that is tested and I'll just in the United States until it's test in Japan until tested in

other countries. We've not even if we're not really knowing, you know, very well what what the issue is now the question is just a how long it's going to take to get there. But for the SEC they wants to control her to me. And I understand that but if you listen to the testimony of the cftc where the commission of very clearly said, it's not our decision. If our children want this then it's all obligations of the government representing. Our people is to do what our kids want not to block it. So so I I side with the cftc. I think it's much more Progressive. We're thinking about it and

the SEC has to just be instructed. It's not about them. They follow the law. All right. So whatever the lawyers they just going to execute that's all right, one of the translations of decentralization is censorship resistance and people who talk about lock change and this stuff think in terms of Dorothy's or censorship resistant, which also means resistant to government regulation. The technology isn't something fundamentally designed to be censorship resistant resistant to government regulation right now. We're in an

in-between state but game on how are you going to rain? Headed when the technology really gutsy centralized and is working again and we just says the technology will evolve our approach will evolve to predict where we're going to be in 10 years or 20 years would be folly. Do you have any we have on there? So I started a small College in I have some students asked me if I'm accepting cryptocurrency. Is that something is going to happen soon? Should I start accepting cryptocurrency as payment? What is submission his coin now? He's going to say you should have started something mine.

Obviously, these things are very volatile. And and if you need that Capital to run your business to run your college, then you taking a lot of risk, right? So it's too much risk for you to take to run your business the normal way but a lot of companies do is that they've for example of a stuck and others and they accept crypto if only 10% or 5% of their payments and then they use that almost as an investment vehicle where if it depreciates you could be become hopefully the Endowment for a college right? Because it has a chance to appreciate a lot but also the chance to go down in value. So

since it all about how much of that you are locating if it's only 5 or 10% of your total College contribution, you know the fees then I think it's reasonable. Anymore one here. Wait for the mic. So when Alexander Hamilton founded the American Financial system, he had to deal with eight hundred different banks all creating their own currencies, and he was dealing with the big problem that blockchain actually solves or should solve which is how to track who actually owns these bonds or stocks are

dollars and what they're worth. So I have no problem with the technology but it seems like all of the currencies right now are seem like very AOL because they actually may solve one problem, but they don't solve a big problem that we've learned from history, which is the currency has to be able to expand enough to meet the uses of the people who need it and blockchain Bitcoin for all I understand is severely limited. And so the more the value the cost of it goes up the less utility it will have

1038 there's a whole bunch of I think potential kind of misunderstanding at the market has that are related to your question. So first of all, there's no Central governance in Bitcoin, right? That's actually a future because that actually helps maintain the immutability and the security which of the most important features of it. Meaning that no benevolent dictator can actually say change the code to let a 51% attack is possible to erase all the prior transactions not possible. I've tried to actually act on the side of people making changes faster and I've lost the battle. Okay. So so the

decentralized governance is while it's a feature it has the downside that it causes the changes to happen very slowly which when you have a 200 billion dollar asset class is probably a good thing turns out that the best way to deal with that is lots of competition to lots of cryptocurrencies are emerging which solve different aspects of the future technology stack around a coin coin itself has an amazing roadmap. I'm a huge believer in it. Network which is which is actually in production now which can scale to hundreds of thousands of transactions a second meaning Visa like numbers is

now live that using smart contracts But ultimately other Technologies from other cryptocurrencies, which may fail like the snark so that the Privacy aspects of Monero vs zcash will probably find their way into Bitcoin at some point and it but it may take 10 years. So the best way to deal with all of this is these competing currency so it's a very different problem then trying to Aggregates, you know, everything into a central bank, which is the opposite of what we're trying to get. All right, so please join me in thanking our promise.

Thank you.

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