In this wide-ranging episode, Eric Meltzer and Dovey Wan of Primitive Ventures describe how Asia is weathering the crypto downturn: how have the low prices affected miners, how has this affected Bitmain’s prospects for an IPO and how, despite a ban on crypto exchanges, Chinese crypto users have been trading. We also discuss more broadly how crypto projects and startups differ between China and the U.S., how crypto is upending Silicon Valley’s dominance, and how differences in regulation are affecting entrepreneurship in the space. Plus, Eric and Dovey address whether or not the surveillance state is motivating Chinese interest in crypto.
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Tokensoft: https://www.tokensoft.io
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Episode links:
Primitive Ventures: http://primitive.ventures
Eric Meltzer: https://twitter.com/wheatpond
Dovey Wan: https://twitter.com/DoveyWan
Binance was more profitable than Deutsche Bank in quarter 1 of 2018: https://www.ccn.com/binance-surpassed-germanys-biggest-bank-deutsche-in-profitability/
Bitmain and Huobi layoffs: https://www.scmp.com/tech/blockchain/article/2179513/chinas-cryptocurrency-giants-bitmain-and-huobi-plan-lay-offs-amid
Hong Kong regulators reluctant to allow crypto firms to IPO:
https://www.scmp.com/business/banking-finance/article/2178747/hong-kong-regulators-say-ipos-cryptocurrency-businesses-areReport that China wants an “orderly exit” from crypto mining: https://qz.com/1174091/china-wants-an-orderly-exit-from-bitcoin-mining/
Chinese op-ed on why the People’s Bank of China should consider a yuan-pegged cryptocurrency: https://www.coindesk.com/pboc-op-ed-pushes-use-case-for-yuan-pegged-crypto-stablecoins
Transcript:
Laura Shin:
Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I’m your host, Laura Shin. If you’ve been enjoying Unchained, pop onto iTunes to give us a top rating or review. That helps other listeners find the show. Here’s a pause for the ads.
The topic of today’s episode is the crypto scene in Asia, how is it fairing during the crypto winter. Here to discuss are Eric Meltzer and Dovey Wan, founder partners of Primitive Ventures. Welcome, Eric and Dovey.
Male Speaker:
Hey, Laura.
Male Speaker:
Thanks, Laura. It’s great to be here.
Laura Shin:
Before we dive into questions about Asia, and there is a lot to discuss there, let’s quickly discuss your backgrounds. Can you each tell me how you got into crypto and came to start Primitive Ventures, why don’t we start with you Dovey?
Dovey Wan:
Yeah. So, I was born and raised back in China, and I moved to US to pursue my masters degree at Carnegie Mellon University at the age of 20, so I worked at eBay for about four years as the product manager, and I moved onto like traditional venture investment. Like back in Venture, I’ve been doing like Blockchain investment, _____ 00:01:04 investment, and like trying to crypto when I was doing like Blockchain investment, so I remember I met with Eric just like during the Zcash time, so that was like back in early 2017, and Eric and I, we were like both the community board elector for Zcash, and so like that’s how we got to know each other, and we hang out quite a lot, and like Eric became my like crypto buddy, and so we literally just started to talk every day, and like afterwards, because I do like venture investment, like there’s a lot of, like you said, legacy problems, like so for instance, it’s very hard to maintain your just asset liquidity, and like, basically, I had to hop between both like traditional venture and like crypto, like crypto is already 24/7, so it’s pretty tiring, and so like that’s why me and Eric, we were thinking, like what about if we probably decide to start our own thing, so I can be a full-time crypto, so like that’s my background.
Laura Shin:
And for your venture, you were at Danhua Ventures, right?
Dovey Wan:
Yes. That’s right.
Laura Shin:
And just describe who they are.
Dovey Wan:
Oh, yeah. So, like Danhua Capital, it has been a pretty major Asian background venture in Silicon Valley, so I think at the top, our AUM, so like the Danhua total, so like the total AUM was over like half a billion, so it is actually backed by some of the very top strategic money like Alibaba, by Tencent, etcetera, so that’s why it has been like a leading force of this Asian investor in the valley.
Laura Shin:
And Eric, what about you, how did you get into crypto, and if you have anything to add about how you came to start Primitive Ventures?
Eric Meltzer:
Yeah, so I went to college in China, actually, also. I was at Peking University, and I’m also Jewish, and so I guess those two things kind of conspired to make me really excited about Bitcoin, so in like 2013, I was introduced to this…
Laura Shin:
Wait, I don’t understand that.
Eric Meltzer:
Yeah, let me elaborate. So, here’s the background there because I guess my interest in Bitcoin, I think is a lot more political than a lot of investors.
Laura Shin:
Oh.
Eric Meltzer:
And what that comes from is, you know as a Jew, I read historically about how when the Jews had been oppressed in various countries, really the first thing that happened, kind of the predecessor to a genocide was people’s financial assets would be frozen, and so like every Jew has some story about how the ancestors had to flee with, basically, just the clothes on their back, and so when I heard about this form of digital money that was completely outside of government control, I thought that was an incredibly exciting thing really from a political perspective. I wasn’t that interested in the tech, and to this day, I really don’t think the tech is something that new, it’s kind of more of a recombination of existing, interesting stuff, and then going to China kind of further reinforced that because China has you know these super strict capital controls, and so I had a bunch of Chinese friends that wanted to move money out of China, and they would have to find 20 friends that could each send 50 thousand dollars in order to move a million out of China, and that also just drove home for me, like it was kind of ludicrous to have our money in the control of a central government, and so that got me…both of those things kind of got me really into Bitcoin, but I wasn’t that interested in crypto as a whole. I kind of just thought Bitcoin was like this one off really cool thing, but the other coins that were around when I first got started, like if you went and looked at Coin Market Cap in 2013, they were almost all complete garbage. They were, you know, obvious scams. There was Megacoin and Feathercoin, and you know all these ridiculous things that have since died, and so I didn’t think of it as an industry by any means, I just thought it was this kind of cool thing, and then way later, I mean I bought some Bitcoin back then, I held onto Bitcoin, I would like read Bitcoin Talk obsessively, but I didn’t think of it as like a sector, and then in 2017, I started seeing things that were actually interesting, and so like when Ethereum and Zcash and these other coins started coming out, then the exchange infrastructure really started getting built out, it appeared to me that this was actually going to be a thing, and through kind of a crazy series of coincidences, I ended up joining an investment firm in China called INB that’s founded by this really interesting guy named _____ 00:05:32, who to this day is one of the biggest holders of Bitcoin, and so I worked with them for a while, became a partner there, and ran an early investment fund at INB, and that’s how I met Dovey, so Dovey and I were doing very similar, kind of early stage investment stuff, and I think the two of us are similarly picky.
If you look at like, you know I think Dovey and I have more in common with like hardcore crypto skeptics that hate all crypto than we do with like crypto ultra-bulls, and that like you know I think 99 percent of the stuff they hate, we hate too. It’s just that we think there’s sort of a 1 percent kernel of things that are like the absolute truth and are super amazing, and so it was really refreshing to meet someone like that, and like Dovey said, we ended up just talking constantly, and we co-invested in a bunch of stuff, and at some point, I was like, well, I mean, if we’re going to be co-investing this often, we may as well just have a fund of our own, and so that’s how Primitive got started.
Laura Shin:
So, the reason I wanted to have you guys both on the show is because I feel like you are both pretty steeped in the crypto world across regions, and the last time I did a show about Asia was actually quite a while ago, it was like a year-and-a-half ago, so I was really curious to know kind of where things have been going over there, and so just in really broad strokes, why don’t we just start with kind of like the big picture, how would you characterize the differences between crypto entrepreneurs and the crypto projects and teams in Asia versus the rest of the world.
Eric Meltzer:
So, I mean, something that Dovey and I think about a lot is that crypto is inherently global, right, there’s no sort of built-in restrictions in terms of where you can participate, and so as a fund, we look really globally, and what we found is that the stuff that we like in Asia and the stuff that we like in the US is completely different, and so in China, you know a very high percentage, a distressingly high percentage of projects I think of as outright scams, and if they’re not scams, they’re just really uninteresting stuff, but the sort of centralized infrastructure around crypto, so like the Binance, the _____ 00:07:32, Ok-exchange, the _____ 00:07:34 are, in my opinion, like an order of magnitude better than the US counterparts, and so if you compare like you know Binance…not to pick on anyone, but like you know Poloniex or something, it’s just the team is incredibly competent, they’re execution ability is off the charts, and so what we found is that we look at and do a lot more like equity deals in China that are for kind of crypto-associated companies, and then we do a lot more actual cryptocurrency deals in the US, where I think there’s kind of more sort of old school cypherpunk like cryptographer talent.
Laura Shin:
I’m also curious why…
Dovey Wan:
Yeah, I…
Laura Shin:
Oh, go ahead, Dovey.
Dovey Wan:
Yeah. Yeah. Right. So, especially just crypto entrepreneurs and like one thing like specific in China or just Asia in general is because we found like all this application, decentralized application are really good to use there, and I think that’s probably partially because of the whole Fin Tech thing is pretty advanced just back in China, so here in the United States, and people are still paying with plastic _____ 00:08:42 billings of like paper checks every year, but like everything is cashless, so if you ever go to Beijing-Shanghai, people just use Alipay or like WeChat pay everywhere, so I think centralized application or centralized Fin Tech infrastructure is way more advanced there, so like that’s why there’s a lot of talents and entrepreneurs and this traditional Fin Tech founder, who are converted to like crypto founder, and so that’s where we find like the true talents that belongs to that specific layer of applications.
Laura Shin:
Is that why you think that they differ in that way where kind of like the startups and the infrastructure, as you described it, is more advanced and interesting in China versus here, but then also, on the flipside, why do you think more of like the decentralized protocols and stuff with those projects are more interesting in the US?
Dovey Wan:
I think like if you’re an entrepreneur who are building for like a centralized application, and so you have to be really good at user acquisition, like user acquisition in the sense of like at a consumer level, and when it comes to like a protocol like projects, so like the first set of clients, like quote unquote like clients, are more like developers, so you’re basically targeting two different groups of users out there, and so it’s a completely different scale, so I think like that’s why that sets them apart like to a certain extent.
Laura Shin:
Oh, interesting.
Eric Meltzer:
There’s something else that Dovey brought up a while ago that I think we should mention which is just you know if you’re working in crypto, you’re working on a technology that’s fundamentally anti-government, and you’re working on a technology that has a ton of regulatory risks, and so you kind of need to be someone that’s extremely comfortable with being a pirate, and we’ve noticed there’s more of those people than you would expect in China.
Despite that, there’s kind of not the crypto firepower that we would want for like these protocol level projects, but in terms of like CZ and ____ 00:10:57 have at Binance where they’re just going to go ahead and do this thing, and if it works, it’s fine, and if it doesn’t, you know they’ll live in Singapore or something, and it’s been slightly a bummer for me because there’s been definitely projects in the US where they’ve approach me with something that I think is really cool, and I’m like, well, but like you guys are US citizens, and you’re under US regulatory regime, and what you’re trying to do is just not going to fly in the US, and so we can’t fund this because like it’s not going to work in the states.
Laura Shin:
Oh, you know, I thought you were going to go in the opposite direction with that statement. I thought that Dovey’s point was that the Fin Tech firms had done well in Asia or China because…oh, sorry, because the Fin Tech’s had done well that that’s why these like startups, these exchanges, had done well, but that something decentralized is really different, and I thought where you were going with being like anti-government was that people in the west are more used to doing that, and that’s why they’re you know more I guess developing more interesting decentralized protocols, but you see it the reverse.
Eric Meltzer:
Yeah, I mean, I think it’s really nuanced, so like the nuance that I would try to explain is that like the Chinese infrastructure firms that are flourishing, they’re doing so outside of China, so it’s Chinese teams, but they’re not dealing with Chinese regulatory risks because they don’t have Chinese fiat channels, and so there’s some kind of interplay there, and the other thing is you know the general I think sort of Chinese developer profile I would say is much more sort of authoritarian and you know unwilling to challenge authority, but then you get these occasional teams…not to come back to Binance, but I think they’re really amazing, you know, and the other big exchanges in China as well and a lot of the wallet projects where it’s whether you love them or hate them, it’s sort of like the Travis Kalanick, Uber model where they’re like, look, we made this thing that we know people like and maybe the regulation doesn’t fit yet, but like we’re just going to keep doing this, and people are going to love it, and eventually, the regulators will come around, and I think we’ve seen sort of less willingness to do that in the US.
Laura Shin:
Yeah, I will urge people, if you haven’t yet, to listen to my interview with CZ. I also think he’s pretty amazing, but Binance is just like an incredible story. You really need to listen to that podcast if you don’t know the story of Binance. So, one other thing that I was wondering, so now we’ve discussed the difference in the entrepreneurs, do you think that like investment in the two regions differ, like do you see that Chinese investors kind of prefer certain things versus investors in the west?
Dovey Wan:
I think like when it comes to specifically on Chinese investors or just at firms that’s based in like mainland China, so we have to categorize them into something…so for instance, we have like pretty good friends out there, like NGC, FBG, and like a few others out there, and I think like their preferences are very much similar as that what we have, but I think there are probably like hundreds of like different other VC funds or like crypto funds out there, and they’re actually not even funds, so they’re just a simple like a syndicate, and so like that’s what we have seen in like 2017 and like early 2018, so like hundreds of less such funds like pop up, and like many of them they’re like extremely short-term, and so like the whole fund cycle so it’s only one year, and like many of them are like just such pure disappointment dumpers, and so most of them are just a trading centric, and so they will help you to do market making, so they will probably do like all these _____ 00:14:40 design with you, and so like most of them are like looking for just a short-term return and just a short-term liquidity, and I think like we have to categorize of those like not the legitimate funds out there and analyze some of those, so like just say some _____ 00:14:56 once out there, and one thing I’ve realized about the investor profile is many of these like investors, so they don’t have any just like product _____ 00:15:07 experience, like many of them are not working in the tech industry at all, and so some of them are former you know like amateur trader of like crypto, so buying Bitcoin early on and just like get rich overnight, and like many of them, so they would probably try to invest their existing crypto and then into something they can just like keep the multiple going, and so like that’s a very common and talent that I have seen in the whole Asian landscape.
Laura Shin:
Wow. Like meaning, so they form these sorts of temporary groups, these short-term groups, and then they just…I mean like these protocols or these tokens, you know whatever the projects are, like they would take a while to build, but they’re trying to get a profit within that year?
Dovey Wan:
Yeah. So, it’s probably like a few weeks.
Laura Shin:
Oh, my God.
Eric Meltzer:
Yeah. Well, I mean, I would add to that by saying that there’s kind of this shadow ecosystem of like extremely shady projects in China and extremely shady funds, and so you’ll have these projects that are, in my opinion, just like pure garbage, and they’ll offer to their friends, who are running these kind of like pseudo little mini funds, these huge discounts with some form of lockup, and then they play this kind of musical chairs game where their token gets released, they pay some listing fee, they get listed on some exchange, and then the funds that were in early all make two or three or whatever 10x, depending on what the situation is, and then they just rinse and repeat, and so what happened is when you know during the massive bulled run in 2017, they were able to do that pretty successfully, and then when the market turned much less bullish, they found themselves holding onto a bunch of just pure garbage tokens that were made by teams, in my opinion, really in bad faith, and so a lot of those funds, you know because what Dovey mentioned, they have this extremely short time cycle, they’re screwed. I mean they’re in a lot of trouble because they’re holding assets that have no inherent value, they have no one to sell them to, and their LPS want their money back in two or three months, so I think we’re going to see kind of just the way we’ve seen in mining and the way we’ve seen in projects like when the market turns sour for a while, all of these kind of amateurs and scammers and everyone get washed out, and I think we’re going to see a lot of washout of that kind of fund.
Laura Shin:
Okay. Yeah, let’s hope. One thing that I wanted to ask you was I’ve spoken to both of you before, and I noticed that I’ve seen or heard you both call the advantage that Silicon Valley VCs used to have, you’ve called it an unfair advantage, and both of you said that you think that that’s changing now with crypto, so what do you think that advantage was before and how do you think crypto has changed that?
Eric Meltzer:
So, I think in the past, like the huge advantage, and I think this advantage still exists to some extent, and by the way, I mean the reason we use the word unfair advantage is it’s almost like a term of art in startups, we’re like if you’re investing in a team, you want to ask them like what’s the advantage that they have that no one else can access, and I think for Silicon Valley VCs, the big thing was there was just this huge network effect where if you are at Silicon Valley startup, everything you needed was in the valley, like all your hiring was going to happen in the valley, all of your future fundraising was going to happen, you know on Sandhill Road, like one street in Palo Alto, and so if you were a very well connected Silicon Valley VC, you could approach entrepreneurs and tell them you know we’re well connected to all of your potential customers, we can help you hire, your future fundraising is going to happen with people like us, and then crypto came along, and then crypto, the ecosystem is much more global, and so if you’re a project, you have to care about like miners, which are mostly in China, you have to care about an exchange ecosystem that’s truly global but also has a very large China presence.
Many, many of these crypto teams are hiring remotely in eastern Europe, in China, in Singapore, and in the US, and so if you’re an old school you know Sandhill Road VC, you’re actually going to be at a pretty big disadvantage because when a crypto project approaches you, you really can’t offer them very much, and I think crypto projects are starting to wake up to that where in 2016, 2017, a lot of these projects were really excited to get like you know the big name, brand name VCs onboard as investors, and then they realized that like the value ad being promised just wasn’t being delivered because these people, they’re not really in the right position, they’re not attracted to the right people, and you’re starting to see a lot more specific crypto vehicles like a fund that we like a lot is Paradigm, and so Paradigm was like Matt Wong left Sequoia and partnered with Fred Ehrsam this guy Charlie Noise to do a fund that’s specifically going to be crypto focused and that will hopefully establish these connections, and so I think you know that’s going to be a trend, and that it is really just the global nature of the ecosystem that sort of eliminates that advantage that Valley VCs had.
Laura Shin:
And for people who don’t know, Fred Ehrsam is the former co-founder of Coinbase, who left in I think late 2016. Dovey, were you going to add something?
Dovey Wan:
Yeah because I think the traditional venture business has been very regional or they started as a very regional business, and like Silicon Valley has been the center of technology innovation over the past few decades, and like the whole ecosystem is complete, right, because we have been saying that like the whole Bay Area or like the Silicon Valley has been a stack, like the difference in like South Hall, the barrier is the infrastructure Cisco, Intel, Inveria and so like moving onto the north of the Bay is San Francisco where like all the applications is happening, and I think when it comes to like crypto, like everything is very, very scattle, and ever since the early days in China and like Korea has been like major players in the crypto landscape, but the topic changes were started, and I think like most of them, they are still operating back in China, and like most of the biggest mining operations are also ran by Chinese, and there’s also another thing I want to mention, so it’s about the drive and also it’s about the desire for less social mobility that’s one thing that’s very obvious in South Korea.
When it comes to like South Korea, like first of all, South Korea has a very strict capital control as well, and because it has a very high demand and very, very low supply, and so like that’s how the _____ 00:21:26 to assist, and also _____ 00:21:30 took off like a wave of like crypto hype, so _____ 00:21:36 citizens, and then I think like the hype of crypto and token investment and also like the very strong drive and desire for less social mobility and then because there’s like an illusion that you can be overnight millionaire, so back in Korea, so that has become like a social phenomenon, so both investing and like doing crypto startup has become both the Chinese and Korean version of American dream, and so that’s one thing that’s probably lacking in Silicon Valley right now because I think most of the valley entrepreneurs, so they’re relatively philosophical and idealistic comparing with like Asian entrepreneur, like who are definitely more like practical, and so the whole hype behind crypto has propelled that.
Laura Shin:
So, actually, before we move on, I did want to note for listeners who don’t know what the Kimchi Premium is, that was this period, especially during 2017, when due to like restrictions on where you could trade, demand in Korea drove the prices up, sometimes, I think to like 30 percent higher than they were in other exchanges, is that roughly what it was?
Dovey Wan:
Yes.
Laura Shin:
The peak?
Dovey Wan:
Pretty much. Yeah.
Laura Shin:
Which is just insane you know for coins like Bitcoin and Ethereum and stuff like that, so does the Kimchi Premium even exist anymore?
Dovey Wan:
So, I think it’s down to like less than 1 percent now because everything has to be more on _____ 00:23:22 and because of like a better liquidity.
Laura Shin:
Okay. Yeah. I did hear some other podcasts and other people that are a little bit more trading-oriented talk about how I think some people would like try to talk to their friends and relatives in Korea to see if they could like take advantage of arbitrage opportunities.
Dovey Wan:
Yes. Yes.
Laura Shin:
I do not condone that behavior. However, that is I think what was going on back during those days, but just sort of curiously, because as far as I understand, in general, I think there’s just much higher trade volume in Asia than in the west, why is that?
Dovey Wan:
So, in general, like the trading volume, I think the trading volume because exchanges are there, right, because like Korea has the three biggest like exchanges out there, so they can accept like fiat, and so like that’s why the fiat _____ 00:24:18 channel is like pretty sufficient there, and then China, before the ban last year, most of the major exchanges can also accept RMB, so like _____ 00:24:30 the fiat, and so that’s why the fiat _____ 00:24:33 channel is very smooth, and like even after the ban, like everything just quickly moved onto Alipay or WeChat pay over-the-counters, like because a digital payment is already pretty advanced, and so it’s almost like we can transfer money on WeChat, and so I can have your address, and so we can actually do like just over-the-counter transactions using this peer-to-peer manner. I think probably that’s one of the reasons why the trading volume is larger in general in Asia, and then like…
Eric Meltzer:
You know, I would…I would…
Laura Shin:
But I feel like that would make it…okay.
Eric Meltzer:
So, I would add to that, that you know when I first moved to China for college, I was at a café, and I saw like this middle-aged woman with her computer open, and she had what looked to me like a Bloomberg terminal open. I mean, it was just really advanced like trading interface, and she was day trading Chinese stocks, and I was like, huh, you wouldn’t really see that in the US, then it turns out like in China tons of people are really active, and in some cases, very skilled day traders, and so there’s a lot more I think just like amateur traders in China. I think that the structure of their markets is a lot more retail focused, especially with like the Chinese domestic stocks, and so you had this huge pool of people that were used to trading pretty speculative assets, and so when crypto came around, they were really into it, they traded it very heavily.
Laura Shin:
Interesting.
Dovey Wan:
Yeah, I think like there’s…So, there’s also very, very unique landmark infrastructure like in Asia, so if we comparing like a dot-com bubble, so comparing the dot-com bubble versus like the crypto bubble, and so there’s things not too many investment bankers out there, like just at sell side, buy side agents, so here in the United States or like Silicon Valley for specific for like crypto products, but like there are tons of less such channel or just like selling agent back in Asia, and so in just Korea, Japan, China, or like Thailand, just all over, and like people tend to have like crazy love into financial products, and so like those financial products are like either insurance or like _____ 00:26:44 product, or like shadow banking products, so there are so many of those just like average mom and pop, and so like they will all buy into that, and so like usually it can be like a shadow banking product, which is not very, very common here in the US, and like many of like those agents, so they’re actually selling like crypto products comparing with this regular financial or just shadow banking products out there, and I think like that’s one of this very unique like _____ 00:27:13 thing back in China and like in Asia in general.
Laura Shin:
One other thing that I was curious about though is if you were seeing that a lot of OTC crypto trading is happening via WeChat and Alipay, those are surveilled platforms, right, so obviously, there is this ban on Bitcoin exchanges and investing in ICOs, so could trading on those platforms or investing via those platforms, could that put people who use them at risk?
Dovey Wan:
So, there’s actually like a certain risk out there, especially like the Garmin. They have been rounding all these like monitoring especially on crypto transaction, but I think if you are like careful enough and just like the amount is small enough, it’s relatively hard to be caught, but I think there’s definitely risks exposed to getting your banking account being froze and stuff like that, and so like many of my OTC friends have through that before, but I think in general, so if you’re just doing like a consumer level and just a small amount like peer-to-peer transaction, it should be fine.
Eric Meltzer:
Yeah. I think that’s accurate. I think also the situation on the ground is that it’s illegal in China to run a cryptocurrency exchange that has fiat, but it’s actually not illegal for me to sell you some Bitcoin for R&B if like the two of us are just friends. You know, it’s unclear whether there might be some other kind of weird risks associated with that. I had a friend who did a pretty small OTC transaction, and then ended up getting, basically, a police summons that said we think you’re involved with money laundering, and she went, and it was fine, but I guess what happened is that like somewhere in the chain of either, I forget whether it was the Bitcoin transactions or the fiat transactions, some money that didn’t have a good origin ended up in her account, and they froze her account, like Dovey said, and it was a hassle, and she ended up it was fine, like she didn’t get in trouble or anything, but it was pretty scary.
Laura Shin:
Yeah, but it’s just like a really weird, like as an American, the idea that a transaction that I’m doing on an app that the government would have some insight into what I had done, like that’s a weird thing to me.
Eric Meltzer:
Well, I mean, but that’s of course happening in the US as well.
Laura Shin:
Right, right, right, but I guess it’s happening if you’re using…I guess what I’m saying is because like a chat app, right, it’s different from if you’re using like a financial app.
Eric Meltzer:
Well, but I mean in the US, the governments have full surveillance of every chat app as well except for maybe Signal.
Dovey Wan:
I think that when it comes to…so, if you and I like wants to transact crypto but like the only thing we are going to communicate over like WeChat is probably just like the QR code, and I think like the surveillance, and so they would definitely try to labor like those crypto relevant conversations, but when it comes to like small amount, and so it’s just fine, and then just holding crypto is actually legal, so it is actually not illegal. Yeah, so like we don’t know anything about like so what is the specific like just monitoring a policy behind WeChat, but like so far, if you’re just doing like small amount, it should be fine.
Laura Shin:
So, we’re going to keep discussing regulation in a moment, but first, a quick word from our fabulous sponsors. Here’s a pause for the ads.
Back to my conversation with Dovey and Eric of Primitive Ventures. Before we keep going with this discussion about regulation, I did also want to ask you because I do feel like your fund is kind of unique in the depth of your relationships in both the US and in Asia, so I was curious how your connections in China have helped your US investments.
Eric Meltzer:
Yeah, I mean, so I think there’s been a couple of like interesting examples, but one of the big ones is really just like Dovey much more so than myself is super tied in with the miners in China, and there’s a lot of cases where you know US projects that are proof-of-work based will want to do something that would actually be disastrous for them from a mining perspective, and so like recently, you know Zcash has been discussing changing their mining rewards such that it’s time locked so that the crypto that you get from mining is not immediately spendable, but it’s sent to you over a long period of time, and Dovey was able to very quickly talk to a bunch of Chinese miners and ask them how they felt about that and came back with the result that it’s pretty likely that will be like a very strong centralizing force, and so whether Zcash does that or not, who knows, but you know they can get very quick feedback from us on what the actual look on the ground is.
There’s been a bunch of other ones like you know we’re really excited about this project called Handshake, people can check it out, it’s handshake.org, but the general idea there is to have a DNS root server placement handled by a Blockchain, and so you can do DNS routing of websites, and then also of crypto, if you want, using these human readable addresses, and those guys also had a Proof of Work issue where they initially were going to use an algorithm that’s the same algorithm that Grin was originally using called Cuckoo Cycle, and they decided to switch it to an algorithm called SHA-3 in the hope that they would be very ASIC friendly and that they would have lots of people building ASICS, and we were able to give them some sort of inside info on like you know exactly how they should implement that to avoid having a Chinese company that has already made ASICS for that, just be completely dominant from day one, so I think mining is a part of the big picture.
I think the other thing is like we have really close ties to a lot of the exchanges, and where that comes in is that like these exchanges everyday get an overwhelming amount of contact from new crypto projects asking to be listed, and they actually have a really hard time distinguishing like what’s a really truly solid project that they you know should just immediately list and that they shouldn’t ask for a bunch of listing fees or anything weird like that, and then what’s just kind of a marginal project, and so what Dovey and I…by virtue of the fact that, like I said, we’re just like super, super picky, we’re able to go to our exchange friends and say, hey look, we’re looking at this project, we think they’re really awesome, you guys should look at them too, you know here’s the contact, and we can make those connections, so I think really kind of two of the biggest pictures are the mining and then also the exchange side of things.
Laura Shin:
And then, actually, just to circle back to the regulatory thing, I wanted to ask you because you can see, and I feel like this is affecting a lot of your investments, you can see how the regulatory climates differ across regions, how do you think that’s affecting the development of crypto overall, like globally?
Eric Meltzer:
Yeah, I mean, I think like what we’re going to see and what we’re beginning to see is there’s going to be some jurisdiction that says you know this thing is extremely disruptive, and like I said, I truly believe crypto to be…I think maybe anti-government is too strong of a word to sue, I think it’s something like that massively empowers individuals over governments, and so it’s kind of a scary thing for any government in the world to be like, yeah, we’re totally onboard with this, but I think what you’re going to see is there will be some jurisdictions, and I think Singapore’s a good candidate for that. I think Maltese is doing some stuff in this department, and even some states within the US, like Wyoming has been extremely positive. They’re going to see that you know having this infrastructure that’s going to be processing billions and billions of dollars of transactions is actually going to be something really valuable for them from a job creation perspective, from a financial perspective, and so they’re going to start getting onboard with that, and that’s why I guess I have a lot of friends, like Naval Ravikant, is someone who has this opinion, and I don’t agree with his opinion, and the opinion is they’re very, very worried that like governments are just going to unite and shut down crypto, and I think it’s you know a legitimate concern, but why I’m less worried about it is I think there’s this really interesting game theory where like if every other government is like, yeah, we hate crypto, then there’s a high incentive for some government to say, no, no, we love crypto, come here, and you know pay our taxes on your incredible returns, and so you know Binance made more money than Deutsche Bank in Q1, and Binance has 200 employees, and I think Deutsche Bank has something like 100 thousand, so we’re talking about very significant sums of money, and I think that’s going to end up being very enticing to some governments.
Dovey Wan:
Yeah, so…
Laura Shin:
Yeah. I’ve already seen that happening. Yeah, the likelihood I think that all the governments unite in one viewpoint on crypto is so low, but anyway, Dovey, what were you going to say?
Dovey Wan:
Right. So, basically, I think like first of all, like the modern politician, and so I think like their job is not to form consensus, right, so it’s almost impossible like for all these major politicians to form a consensus to shut things down unless it’s about life and death, and so like that’s what we have seen about World War II, about financial crisis last time, but I think like crypto like nowadays and so it’s just like not big enough for them to think about like forming consensus as like one entity, and then so like the other very interesting game theory is, I think like right now US and China are in a very interesting historical moment because like both think China and US and we have this very strong modern leader, and so because of them, so like the strong modern leader leads to political tension, so when it comes to political tension, anything that China bans, so I think US will probably never ban it, and so like that’s also like the very interesting game theory that can actually keep crypto survive, and then so that’s actually like the Taiwan _____ 00:36:39, and so when it comes to _____ 00:36:42 like Singapore, Japan, Korea, and so they’re actually moving very fast on like hurry find, record trade playbook, and license qualifications, stuff like that because they have very strong incentives like to _____ 00:36:54 the whole industry and like see it as a great opportunity when US and China are in these like power struggle, and then based on currently, actually in Singapore right now, so I live in a building, which is a very interesting, so three other very influential crypto entrepreneurs, like back in China, so they all relocate to Singapore, and so we literally just like live in the same building here, right, so I think like that’s that one a very major phenomenon that many of like these Chinese entrepreneurs, so they’re willing just to like give up what they have back in China and like move out to a state that’s more friendly and just like start everything all over, and I think like they still have ability and just like sustainability of this Asian entrepreneur are just amazing. It’s like just like cockroach level sustainability.
Eric Meltzer:
Yeah.
Dovey Wan:
Yeah, like definitely. Yeah, so I think like that’s my point on like regulation, in general.
Laura Shin:
All right, so let’s move on to something that’s been on everyone’s minds recently, which is mining. How has this crypto winter affected the miners?
Dovey Wan:
So, okay, when it comes to mining because like one thing we have to understand is for…so, just like for all the POW mining, just that Proof of Work, right, so when all the POW mining, and so they have one thing, that’s difficulty adjustment, so when it comes to difficulty adjustment, which means like the difficulty is actually like a trailing indicator of the price, so when the Bitcoin price crashed, so the Bitcoin difficulty level is not going to adjust immediately, so it’s always lag, which means like all the miner has to keep the same level of like hash power in order to keep producing the block, and so that’s why a lot of land miners who are not very efficient or like who are not on a very good unit economic, so they will actually be like washed out because like if your like blah reward cannot cover your marginal operational cost, and basically, designed by the economic as a miner, and then so you are not going to mine because you will be losing money, so there’s a lot of this like turning off of the machine or just like have the merchant…or probably just sell the merchant at like a deep discount to some miner that can be more efficient, so that’s happened in the last couple of months.
So, we can actually see everything reflected on the total hash rate, so if a lot of miners are turning off their machine, and so we will see like a hit on the hash rate as well, so I remember our hash rate right now is about like 40ish, and so like from the peak it was about a 30 to 40 percent drop.
Laura Shin:
Yeah, and just to explain it for people who maybe aren’t super familiar, when Dovey was talking about the difficulty, essentially the more computer power that there is on the network, the harder it is to find a block, like the more electricity that you need to put into it, the harder the math problem gets, and that’s because this software was designed so that there would be a new block found roughly every 10 minutes, but of course, if you have more people and more computer power on it, then you would just find them more quickly, right, and so instead, the difficulty will adjust to make it more difficult, but what Dovey is saying is the reverse has been happening where the difficulty is dropping, but it only adjusts every two weeks, and so during this period, where the price has dropped, there are a lot of people who cannot keep paying the same electricity to try to find the blocks to get the rewards, and so those people are just having to quit and maybe sell their miners. So, do you think, because as far as I understand, I think also that whole cycle hurts Bitcoin in a different way, which is that many of those miners may also sell their Bitcoin reserves, which then further drives down the price, do you know if that’s happening?
Dovey Wan:
So, like that has been happening for a while because I follow every model of the machine, and so let’s say if you’re probably mining with the best machine from like Bitmain S9, and so like S9 has like a certain level of like price point that can like break even, so if you hit the break even point, and so you have to sell the coin that you have mined just to like cover your operational expenses, so like every model of the machine has like a different breakeven price, and so like the better off the machine is and like the lower the breakeven price is, and so like that’s why we have seen a lot of this relatively like outdated model, like say for instance, some early model from like Avalon, and then probably from Bitmain as well, so many of them just like cannot sustain, and so for many of them, anything under 4 thousand, so it’s actually hitting their breakeven point, and so like that’s why they have to just like keep selling or otherwise, you say stop completely.
Laura Shin:
Wow. So, I’m glad you mentioned Bitmain because they’ve been in the news. Apparently, they’re undergoing layoffs, and potentially, on a really large scale with rumors of the layoffs hitting more than 50 percent of staff, and this comes in this period after they’ve filed to have an initial public offering, so can you tell us what you know about the layoffs, like do you know how many people it is, which departments, like any details you have there?
Eric Meltzer:
So, before we get into the Bitmain stuff, I just want to add one thing about the mining issue, which it’s been kind of interesting to see that like despite all of the negative stuff that Dovey just went over, which is all totally true, Bitcoin has kind of just kept on chugging, and so there was this theory that like you know what Dovey described with the difficulty adjustment and also selling your reserves that you would end up with something called a mining death spiral where like as more and more miners abandon the chain, the difficulty level adjustment happens too slowly, and so no one can mine, and so even less miners mine and it ends up just completely halting the chain, and we haven’t seen that happen, and in fact, we’ve actually seen the difficulty level start going back up, so the difficulty level hit like a low I want to say in early December, and then it’s been climbing ever since, and you know the new difficulty adjustment that hit around December 31 was an upward one, so it seems like Bitcoin is actually pretty resilient even to these really extreme price drops coupled with you know crazy regulatory action and a bunch of strife for miners, and so I think in the long-term, it’s actually pretty exciting for Bitcoin. It’s just kind of like yet another thing that was supposed to kill Bitcoin and didn’t.
Laura Shin:
Yeah. It’s things like that, that remind me of how when I was first learning about it, and I just felt like learning about Bitcoin was just blowing my mind in so many ways, and even all these years later, when I realized that it works, I’m just like wow, like that’s kind of amazing that they figured that out. I just feel like it’s the longest game of, I don’t know, just like something where you have to keep like a balloon afloat in the air or whatever, like it just keeps going, and it’s kind of incredible.
Eric Meltzer:
No. No. No. I forget who said it, but there was some great quote about like Bitcoin is the only thing that works better in practice than in theory. I love that.
Laura Shin:
That’s super funny.
Eric Meltzer:
That’s great. So, yeah, anyway…
Laura Shin:
So, back to Bitmain.
Eric Meltzer:
Back to Bitmain because that’s really interesting.
Laura Shin:
Yeah. Yeah. That is so interesting. What’s going on there?
Dovey Wan:
Yeah. So, like all the things I know, so that’s actually not confirmed officially by Bitmain, but because the local community is just so small, and so we have pretty much I know everything, like even like before any official thing came out, so from like what I have heard, so the layoff is definitely more than 50 percent, and I think it’s probably hitting by 70 percent.
Laura Shin:
Oh my God.
Dovey Wan:
Yeah, so just to let you know about the total, like the total employee number of like Bitmain, like before the layoff, and so it’s somewhere around three thousand, so it’s a huge company, and because based on their IPO filing, I remember it is around two thousand five hundredish just based on the IPO filing, and so they have been hiring like crazy like even afterwards for like a few months, and so that’s why before the layoff, it is around three thousand, so from what I’ve heard is, like their Beijing office, which is their headquarters, so it’s going to be cut to three hundred from over a thousand, and so they have like a _____ 00:46:02 office, so I think _____ 00:46:06 office is going to cut from like eight hundred to like two hundred, so like one specific department that’s being hit really hard, so probably two, one is the BCH _____ 00:46:17 client department and like the other one is like the AI department, and like the mining department it has like two sub offices, and one is the mining pool, and I think like that has been reorganized to somewhere to like 20 to 30, so the other office is the south mining, like basically, like the whole mining farm, so that’s something that I’m not clear yet, but what I heard is they have like a major reconstruction of the whole south mining facility thing, so I’ve heard rumor there, so they might be spinning out because one problem with their IPO accounting is just like the majority of their mine income is very hard to put into just regular accounting, so regular accounting mechanism, and like Bitmain has been investing quite a bit in mining facility and just like international mining farm in like Canada and all over the world, and so I have heard rumors saying that they might be spinning out, but I’m not sure yet, but definitely indeed, Bitcoin cash client and also the AI chip team has been hit really bad.
Laura Shin:
And when you say Bitcoin cash client, you mean the software that’s used to run Bitcoin cash?
Dovey Wan:
Yeah, so like client side there’s…I think like the protocol team is okay, but like anything on top of that protocol, like say for instance, like Bitcoin Cash wallet, like Bitcoin cash API, and just anything on top of that, and so they have like a separate team for that, and so that has been hit really bad.
Laura Shin:
Do you think their ideological shift to Bitcoin Cash that has caused these problems?
Dovey Wan:
I think like that’s definitely one of the reasons because I know like Jihan bet on Bitcoin Cash like heavily just after the initial like hard fork, so I remember they have spent over like 2.5 billion just in buying Bitcoin Cash, so like after the first hard fork, and so they have acquired a lot of Bitcoin Cash from their Bitcoin position, but like they had been just keep buying more like Bitcoin Cash, and so that’s around 2.5 billion US dollars, and so I think like they aren’t really ambitious on just pushing out Bitcoin cash and on payment on like pretty much everything. Smart contract came…
Laura Shin:
Yeah because they were taking payment for their miners in Bitcoin cash, right, like you could only buy the mining equipment…
Dovey Wan:
Yeah.
Laura Shin:
Yeah.
Dovey Wan:
Yeah. Yeah.
Laura Shin:
So, they must have a huge amount of it…
Dovey Wan:
Yes.
Laura Shin:
And I’m sure the price of that is down.
Dovey Wan:
Yes.
Eric Meltzer:
Yeah. I mean, so one thing that I thought was kind of interesting is, like when they were doing this IPO, I asked some of my Chinese PE friends what they thought of it, and they had read through the docs like all week, and they were all like really shocked by the amount of Bitcoin Cash on the balance sheet, and I mean, I do exclusively early stage investment, so I don’t really know much about this stuff, and so I couldn’t have like a really solid take on like whether this is normal or not, and their take was that it was insane, and that it represented a massive risk to the company, and it seems like that’s played out, like you know holding that much Bitcoin on the balance sheet would be scary for a lot of these traditional investors, and so when they see someone holding this alternative asset that hasn’t even proved itself, and an enormous, like very relevant to the company amount, I think that was really scary, and I think they were right to be scared. If you look now, it really hasn’t turned out well for them.
Laura Shin:
Yeah, and according to one report, the regulators in Hong Kong, which is where Bitmain filed to IPO, they’ve indicated that they think it’s too early for any crypto company to go public, so do you think…I mean, it just feels like if they cannot get this cash injection that they were expecting from going public, what do you think the prospects are for Bitmain?
Dovey Wan:
Yeah. So, because whenever like any just bare market or just like any nuclear winter, and I think only the top players are going to survive, and even Bitmain has burned a lot of cash, but I think they still have like decent bankroll, especially after this like massive layoff, so I think they will have decent control on their like operational expenses and just like general expansion plan. I feel like Bitmain should be fine because like they are the biggest ASIC maker out there, like they’re like the biggest miner out there, and so as long as like they stay as the biggest one, they should be okay.
Laura Shin:
Yeah. Yeah, maybe…
Eric Meltzer:
Yeah. I mean, so I would bet against Bitmain like disappearing as a result of this, but I think it’s a massive setback for them, and I think it opens up competition. There’s a lot of like technical teams in China that are competing with Bitmain, and in some cases, I think they actually have a stronger technical team than Bitmain, but what they don’t have is what Dovey was mentioning like the massive economies of scale with you know foundries at TSMC and office supply chain stuff and all the shipping stuff, but I think at the point where Bitmain faces this huge setback in terms of their cashflow and in terms of their asset balance sheet, it opens up a space for someone new to come in, and I think that’s actually something I really love about Proof of Work, where it’s this extremely chaotic, extremely tied to the real world ecosystem, and it becomes very hard for anyone to be a monopolistic power for too long, like you just make one misstep, and now you’re out, and now someone else has taken over, and I think that’s really valuable for the chain itself.
Laura Shin:
Yeah. Yeah. Just going back to Dovey’s comments, I just realized after I asked that about Bitmain that maybe one of the reasons that they are doing these massive layoffs is because they’ve taken the temperature and realize that maybe they won’t get their IPO, and so this is their way of saving themselves. So, I also want to ask something else about the Chinese government, which is I read this other report saying that the Chinese government wants to get Bitcoin miners in China to exit the industry, so do you know if that’s true, and if so, do you know if miners are complying?
Dovey Wan:
Yeah. So, as far as I know, I don’t think so, like there’s still a lot of _____ 00:52:51 mining operations, and so both like illegal one and legal one, and so I think they’re still operating okay. Like the right now problem is like not from the government, so it’s more about the just like economy in general because like the hydropower, just like the hydroelectricity cost is actually not that low back in China, and many of these Chinese miners are going to Russia, going to Ukraine, going to like the other part of the world to find some cheap electricity like to further run their operation. I think it’s more economic driven, but not like government driven.
Eric Meltzer:
Yeah, I totally agree with that. I think also the other…like everything, I mean, it’s so much more nuanced than the general media reports, so in China there’s not like a ban on mining, what there is, is if you’re on the national electricity grid, they don’t want you mining. However, a lot of miners have their own electricity. So, we know some folks that used to be gold miners, and they have their own hydropower and their own coal power that they were using to power a gold mining operation, and they now switched like half of that over to mining Bitcoin, and the government probably doesn’t even know about that and certainly doesn’t care about it, and so you see like you know when people say the Chinese government, I think very rarely is that an accurate phrase, and what they mean is like you know the province of Hunan’s government or like you know the central government or whatever, but it’s not really a model of the organization, and there’s this great phrase in Chinese, shan gao, huangdi yuan, the mountains are tall and the emperor is far away, and so like lots of places in China, what the central government says is not necessarily what’s going to happen immediately, and I definitely like I don’t think there is some big push from the government to get rid of miners.
Dovey Wan:
Yeah, and because just like checking on my recent conversation with one of my BitMiner friends, and so like he’s actually considering like buying some major den, buying the den out there and just to produce like so his own hydroelectricity, so I definitely don’t think that people are like moving out because of like _____ 00:55:02.
Laura Shin:
Okay. So, like I said, I saw that report that they were trying to do that, and in general, I feel like in the west, we have this conception that everything is extremely top-down over there, and that when the government wants to do something, they can do it, you know just like…oh man, I was going to use a very unfortunate phrase, I was going to say they could steamroll over people to do that, but let’s not think about that, but one other reason that I thought maybe they might have a motivation to do that is there’s been this talk of a crypto _____ 00:55:36, do you have any sense of how much of that is just talk and how much of that is like an actual intention of the government?
Dovey Wan:
So, like first of all, PBOC, just Peoples Bank of China, and so that is like the fad of equivalent, and they have been…so, because I have chat with some of their insiders, so they’re actually extremely knowledgeable about like everything on crypto all the way from protocol to like monitoring policy to everything, and so I think if they really want to roll it out, they can probably do it tomorrow, so it is not about visibility, it is more about timing and about application and about you know like over sentiment, etcetera, so I’m not sure like at what specific timing that like they will make a decision, but I think they have the full capability there to do it, and like the U.N., so I remember like the PBOC, so they have like a research team, so they actually recently published like a paper talking about Blockchain, and so like that’s one of the most insightful paper that I have seen published by any Chinese player, and so like one of the author of that paper _____ 00:56:55 is actually the chief economist of Bitmain, so I think he joined Bitmain after he published that paper, and then also like there’s one company back in China, so invested by Sequoia China I remember and I think also China Merchant Bank, and so they have been _____ 00:57:17 PBOC in-house Blockchain engineering team, and so like the founder used to be working for Ethereum Foundation, so I think like the technical capability is definitely there, so it’s like more about what are the specific applications and like how to synthesize the whole infrastructure because like the whole banking infrastructure back in China is kind of chaos, so it’s like pretty chaotic at _____ 00:57:47…so, if you have saving on one _____ 00:57:51 in China Merchant Bank, and so China Merchant Bank does not share the database with the China Construction Bank, so I think there’s a lot of this like data synchronization problem that they have to figure out like before they can roll out like the whole digital cash or digital U.N., but like you said, purely from like crypto currency perspective, I think their talents and like you said, competence, so it’s like definitely at a pretty high level.
Laura Shin:
So, we’re running out of time, but I just want to ask you guys one last question, which is I know that there are a lot of people in the western crypto community who say that one motivation that Chinese citizens could have to use Bitcoin is to escape the surveillance state and things like the social credit system and whatever, how much do you think that motivates actual Chinese people, who use Bitcoin or trade Bitcoin or other cryptocurrencies?
Eric Meltzer:
Not at all. Not at all.
Dovey Wan:
Yeah. So, like nobody actually like cares about that credit system at all, first of all, and just like people will not associate cryptocurrency with that thing, and then people will only associate…
Eric Meltzer:
And also, that whole thing is like such an overblown, like fake…
Dovey Wan:
Yeah.
Eric Meltzer:
It’s almost like, a fake news story. The western media loves reporting on this credit system, and like no one I know in China even like knows what it is, or if they do, it’s like it’s not very well integrated, most people don’t use it, it doesn’t touch most people’s lives, but it’s just like really scary dystopian sounding thing, and so it gets reported on a lot.
Laura Shin:
But wait, when you say it doesn’t touch most people’s lives, like I mean you must know, for instance, if somebody goes missing, one of the first things investigators do is they look at their financial transactions to try to figure out what they’ve been doing, where they’ve been, stuff like that, and so in China where so much financial transactions happen in this cashless way on these apps that are surveilled by the state, like don’t you think people have an awareness that like…?
Eric Meltzer:
Oh, no, no, no. Sorry. So, to clarify, what I’m saying is like the Sesame Credit, the Social Credit score thing is an overblown story that basically doesn’t exist. I mean it exists, but it’s just not a big deal. The surveillance state stuff you’re talking about is totally real and totally exists, and definitely does touch people’s lives. Like those two things are totally distinct, but I would say like in China people…
Laura Shin:
But aren’t you saying that Chinese people aren’t motivated to use Bitcoin for that reason, like they don’t connect the two?
Eric Meltzer:
No.
Dovey Wan:
Yeah. Yeah.
Eric Meltzer:
They’re not, and it’s just…I mean A, they’re not that worried about the surveillance, and B, I mean, I would say from a factual perspective, Bitcoin doesn’t get you much in that regard…
Laura Shin:
Well, yeah. Actually, it should be like Monero or Zcash.
Eric Meltzer:
And Bitcoin is not an anonymous currency. Right.
Laura Shin:
It would be a bad idea to use Bitcoin.
Eric Meltzer:
Right. Right. Right. I mean, even those things like I think crypto is pretty far from being a really robust payment slayer, so actually, like Dovey and I chatted with the folks who run WeChat or Tencent fund, and one of the figures I was super curious about was like what’s the TPS, you know the Transactions Per Second that WeChat sees, and like we were asked not to share the numbers, but it’s insane, like the amount of transaction volume that something like WeChat sees, especially during peak times, is like mind blowing, and there’s no cryptosystem as of yet that’s getting even close to that. I mean the guys that I’ve seen that kind of have the closest chance of being an actual payment system are the MobileCoin folks, and you know that will be something where like it will work as a payments network. If everyone in China adopted it tomorrow though, it would collapse like all the other ones, and so I think this idea that like people in China are you know jumping on crypto as a payment thing or as like a way to avoid financial surveillance is pretty misguided, but I do think what they are using it for is to avoid capital controls, and that’s the big one.
Dovey Wan:
Yeah. I think also so there are two primary purposes of like using crypto. One is investment asset, people want to get rich, like simple asset, and then like secondary is just like moving capital out, just like moving R&B asset into crypto asset and then like further transfer to probably US dollar asset, so like those are the two primary purposes that we have seen by Chinese people, who are using crypto.
Eric Meltzer:
Yeah, and I think so. I mean, I know we’re running out of time, but I think sort of one thing that I think is really important to understand just from a sort of fundamental perspective about crypto, and I think it really informs Dovey and my perspective on what’s happening in China is that like all of these systems have to first function as like a store of value before they can start functioning as a medium of exchange, and so I think Bitcoin has done very well at becoming this sort of store of value use case, and we’re seeing that you know…well, store of value doesn’t mean you never transact, it means you’re not buying coffee with this thing, but if you want to move a lot of money offshore to go buy a house in America or something, you would use it, and I think we’re going to start seeing sort of the medium of exchange use case come about in like mid-2019 to early 2020 when projects like MobileCoin shift. I think Stellar is looking into stuff like this, and I think we’re going to start seeing that, but I think right now, it’s not the reality on the ground, and so as a result, it’s not how people use these systems in China or anywhere.
Laura Shin:
All right. Well, this has been an incredibly fascinating discussion. I had a whole bunch more questions for you. I think maybe I will see if you guys can just write a few answers for me by email for those additional questions, and I’ll put them on my website for people to read. When I started doing the podcasts, I would often talk about the readers, and then I’d have to be like the listeners, and now, I have like switched the other way, but anyway, so yeah, like I said, this has been such a great discussion. Where can people learn more about you guys and Primitive Ventures?
Eric Meltzer:
So, we have primitive.ventures for the fund. There’s not a lot of information there, but there’s contact information if anyone wants to say hi, and then Dovey and I are both pretty active on Twitter, so I’m @wheatpond on Twitter, and Dovey…Dovey, you’re @doveywan, right?
Dovey Wan:
Yeah just my first name and my last name.
Laura Shin:
Okay. Great. Well, thank you both for coming on Unchained.
Dovey Wan:
Thank you, Laura.
Eric Meltzer:
Thanks for having us, Laura. This was a lot of fun.
Laura Shin:
Thanks so much for joining us today. To learn more about Eric and Dovey, check out the show notes inside your podcast player. New episodes of Unchained come out every Tuesday. If you haven’t already, rate, review, and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn, and if you’re not yet subscribed to my other podcast, Unconfirmed. I highly recommend you check it out and subscribe now. Unchained is produced by me, Laura Shin, with help from Raelene Gullapalli, Fractal Recording, Corin Faife, Jennie Josephson, and Daniel Nuss. Thanks for listening.
