Growing up in Argentina, Wences Casares saw his family lose all their money three times due to actions by the government. The so-called “patient zero” of Bitcoin in Silicon Valley explains why he believes that experience predisposed him to seeing the potential in Bitcoin earlier than most people, why it’s so hard to explain Bitcoin to Americans and why the company he founded, Xapo, isn’t just a Bitcoin vault and wallet company but his best effort at helping to ensure that Bitcoin succeeds. He talks about why he isn’t scared of all the new competitors to his service, including Coinbase Custody, why Xapo hasn’t branched out into any other crypto assets, and why he believes there’s a more than 50% chance that Bitcoin is worth $1 million in five to ten years. Additionally, he still believes the attempt to accommodate more transactions on the Bitcoin blockchain with the SegWit2x fork, which he backed, was wrong — even though the fees after its failure skyrocketed to as high as $60. Plus — he reveals what it would look like if Bitcoin became a global standard of value, and why that vision doesn’t threaten governments.
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Laura Shin: 00:57
Before we get started today, I have three big announcements. First, you may have noticed I did not say I was a senior editor at Forbes. I’ve decided to step down to focus on what is my second big announcement. The fact that I’m taking Unchained weekly. This was my number one, most requested quote unquote, “Improvement to the show” and I’m excited to finally be able to meet that demand. The third announcement is that I am launching a new podcast. It will feature the same marquee names in Crypto, but in a new format and with a different focus. The first episode drops soon. I’ll post a reminder here in the Unchained feed so you can go check it out and subscribe. If you or your company is interested in sponsoring either show, please send an email to [email protected].
Today’s guest is Wences Casares, CEO of bitcoin vaults, and wallet company Xapo. Welcome Wences.
Wences Casares: 00:57
Thank you Laura for having me on the show.
Laura Shin: 02:00
You’re a serial entrepreneur who founded Argentina’s first Internet service provider and Latin America’s first online brokerage firm and you serve on the board of paypal, which isn’t a small company, and yet you’ve often said you think Bitcoin will be bigger than the Internet. Why?
Wences Casares: 02:15
Well, I can imagine a world in which, if Bitcoin succeed for a few billion people. If you ask them where they prefer, that you take away their internet, which is access to information or their bitcoin, which is access to their money. That they’d rather have you take away their internet, but not their bitcoin.
Laura Shin: 02:38
I’ve also heard you say that you believe the un-banked are… what number is that?
Wences Casares: 02:46
There’s a billion to 1.2 billion people who have a checking account and a debit card or credit card, the way you and I understand those products. Everybody else has much, much more restricted access to very basic banking services. They may have a bank account at the post office, that it only lets you make deposits. But not really for making payments, much less use it online. etc.
Laura Shin: 03:15
And you said that you’ve understood or that you understood Bitcoin’s potential early because you saw your family lose all its money three times while you were growing up due to actions by the central bank. What happened at those times?
Wences Casares: 03:27
I grew up in Patagonia in southern Argentina. Growing up I saw my family lose everything three times. Every time it was because of something that the government and or the bank did. Where the first time that I have a memory of that, there was a massive hyper inflation where prices were changing constantly. Everyday, literally sometimes several times a day.
Laura Shin: 03:53
And how old were you?
Wences Casares: 03:59
When that was happening, I was 15. That was in 1989.
Laura Shin: 04:02
And what do you mean when you say you saw the prices change everyday?
Wences Casares: 04:06
I remember my mom came to take us out of school in the middle of the morning. She’d never done that before. Me and my two sisters and she was carrying two plastic bags full of cash. She had been paid her salary. She was a receptionist at the government bureau with a modest salary and that modest salary took two plastic bags full of cash. And she took us to the supermarket and she gave us each an aisle with a list of things. And we met at the cashier and when there was some money left after all of that, she’s sent us back to get more stuff to spend all the money. And when one of my sisters asked her, “why don’t we save some money for tomorrow?” My mom explained that, “tomorrow, it was not going to be worth as much.” At the time there were no bar codes or computer systems as we see them today. So there was one person who worked for the supermarket whose job was to change the prices and our job was to go in front of that person. The person who went through all the aisles putting the new prices and when he finished it started again. So you literally saw the prices change if you follow this person. Our job was to be ahead of that person. It’s crazy, but I saw it happen. Brutal.
Laura Shin: 05:29
Wow. That is really crazy. So you also said that you saw these times when money was affected in Argentina, that you say it change the conversations your parents had or you saw the people around you becoming desperate. What did you see people saying and doing and what do you feel was the lesson that you learned after those experiences?
Wences Casares: 05:53
My memory of those events is not really an economic or even a financial memory. I was a kid so what I remember is sort of quite emotional and what I remember is the discussions my parents had because of what was going on. And their frustration and their anxiety and how everybody else around us was having the same issues and there was like a collective state of panic and distress. Nobody trusted anyone with anything. It felt like the very basic fabric that keeps society together was breaking apart and it took a long time. Something that broke very quickly, took a very long time to rebuild. I have a very clear memory of how this impacted wars. The people who didn’t have any way to protect themselves. Some people who are better off were able to either buy property to keep the money safe in the form of property or even had a bank account abroad or other things like that. But most people who don’t have much money, they didn’t have any of those options. And those were the ones who were hit the hardest.
Laura Shin: 07:21
As you know, a lot of Bitcoin believers especially in the early days were big libertarians. But I don’t know if I’ve ever really heard that kind of rhetoric from you, but I would imagine that these experiences would give you those kinds of beliefs. Did it?
Wences Casares: 07:35
I have a lot of respect for libertarians and sympathy for a lot of those ideas. I am more pragmatic than I am a libertarian and it’s hard for me to imagine a world without a government. Maybe it’s my limited imagination, but I do think that there is an important role for government and I believe that we’re better off with the right amount of government. Often I would like to see less government, but, the libertarian idea of absolutely no government doesn’t. It’s hard for me. I wouldn’t consider myself a libertarian that way. It’s true that a lot of libertarian ideas are appealing and interesting and I have a lot of respect for them, but I do think that there is a place for government and that it’s hard for us to live without one.
Laura Shin: 08:22
And how did you first learn about Bitcoin?
Wences Casares: 08:25
I first learned about Bitcoin because a friend of mine from Argentina suggested that I send money using bitcoin in 2011. A group of childhood friends were contributing to a common project and I was already living in California and at the time. Argentina had banned all forms of sending money. Paypal wasn’t working in Argentina. Western Union wasn’t working and it was very complicated. You had to send the money to the central bank and then there was a way to claim it from the center bank, but it was very, very hard for normal people to do.
Laura Shin: 09:00
Wait, why did they ban things like paypal?
Wences Casares: 09:03
Because this is very recent Laura, 2011. Argentina had currency controls. So you couldn’t… the peso wasn’t freely convertible. And, you couldn’t send money and there were all these controls for you not to be able to send money. The only one who would buy and sell pesos was the central bank. And they had control of every dollar that comes in and out of the country. So anyway, I was trying to figure out if my sister could give my friends the money in Argentina and then I could somehow pay my sister at the time. And one of my friends said, “Hey, why don’t you look at bitcoin.” and I said, “What’s bitcoin?” And, this is a friend who is not very much into technology, not very much into finance. So I was skeptical and I looked into it. I found someone who was willing to sell me some bitcoin in person. From this person in craigslist. We met at a cafe in Palo Alto. I brought $2,000 in cash. And we did the transaction with our phones. With a Qr Code. I gave him the $2,000. He gave me $2,000 worth of bitcoin. When I was walking back to my office in Palo Alto, I sent the bitcoin to my friend in Argentina. And then sometime later that day I was at my desk and my friend sent me an email saying, “Thank you. I got the Bitcoin, I already sold them. I have the pesos in my hand.” And I was like, “Wow, what just happened?” And that’s when I started trying to learn as much as I could about it.
Laura Shin: 10:38
And so I just wonder, we were talking about your personal story and as everybody says you were Bitcoin’s patient zero in Silicon Valley. And I just wonder, was there anything about your personal story, you know, with the way they you saw money handled in Argentina that predisposed you to seeing the potential in bitcoin?
Wences Casares: 11:02
Yeah, absolutely. I don’t think I would have understood it or believed in it, if it weren’t for the things I saw growing up in Argentina. To me, it was very clear and always frustrating that governments take advantage of the people who are weakest, if you will, and I always thought that technology would change that, but forever it had not. And when I saw Bitcoin, it was the first time that I said, “Oh my god, maybe this is the answer, these have all the qualities to be able to let people protect themselves from what governments and sometimes banks do.” So yeah, I think it would have been hard for me to understand that if I had not grown up in Argentina and seen the things I’ve seen. Even though it wasn’t an immediate thing, it took me about six months to go from very skeptical to all in into Bitcoin. A lot of reading, a lot of playing around with the technology, with a client mining, meeting people and learning from them. It was quite a journey for me and whenever I’m telling people about Bitcoin for the first time, I try to remember that it took me quite a long time to get my arms around it too.
Laura Shin: 12:23
I was wondering, going back to how you did get so many other people in Silicon Valley interested in it. Obviously, I’m sure many of them had grown up in the US where obviously the financial system is quite different from the way it works in Argentina. So how did you get them to understand the import of it? In general, did you find it easy or difficult for them to grasp?
Wences Casares: 12:50
I find that its very hard to explain Bitcoin in the US. It’s probably the hardest country. Argentina is maybe one of the easiest. The US maybe one of the hardest and I think it makes sense because when you talk about money to an American, it is a little bit like talking about water to a fish, you know, I’m sure that the fish doesn’t even know that water exists. It is invisible to them. They won’t know what you’re talking about. Money has always worked for Americans. It has worked for them and for their parents and their grandparents. They always use the same form of money. In Argentina, each generation has discarded some form of currency, at least once, probably more than once. Imagine that for some crisis you could get rid of the dollar and you have a new currency. A new American currency that it’s called something different but not dollar. It sort of just changes significantly how you see money. You don’t take it as this given instrument that works. But, it makes you question a lot.
A lot of things that money has always worked for you, you never question. So, I went nowhere from 2011 to 2013. I really didn’t convince anybody. I tried. I tried super hard. People were making fun of me and there was, “Oh no. Here comes Wences, he’s going to start talking about Bitcoin again.” I think time helped but quite frankly, the price action helped a lot. When the bitcoin price began to move a lot in 2013. People began to pay attention. And there was a little bit of sort of chicken and egg there. And, I was at a conference with a lot of important people from Silicon Valley were all present. I started circulating bitcoin from phone to phone, just to show, you know… I didn’t know any other way you could do that. Just move a large amount of money so easily.
Laura Shin: 14:38
Well, I have spoken about this moment before on the podcast because it’s a scene in Nathaniel Popper’s book and it’s a pretty striking, at least for me. Being a reporter who covers finance, because of the amount that you guys passed around from phone to phone was a quarter of a million dollars. So for someone reading that, it’s like, wow.
Wences Casares: 15:03
I did it for effect. For show, just to say, “Well, show me any other way, you know, in which we could be doing this.” And we were in a circular table with about 10 or 12 people around. And it went all around the table from phone to phone until it came back to me. And that happened the first night at this conference and all the people. It caused quite an impression in the people at that table. But then they began to spread it and you could see the price move as it spread through this conference. And I think for me, that was a moment where something tipped and people who were a lot more receptive and then they started buying, started moving the price, and then it becomes sort of a virtual circle.
Laura Shin: 15:42
And what year was that?
Wences Casares: 15:42
Either the end of the 2012 or 2013 or the beginning of 2013, I can remember.
Laura Shin: 15:54
Yeah, 2013 was the year when it started moving up. Out of all the businesses you could have done with Bitcoin, why did you choose to build Xapo with, you know, the vaults, the wallet, the debit card.
Wences Casares: 16:12
Once I understood Bitcoin, I became very, very optimistic that if Bitcoin succeeds, it may be the biggest leap forward we’ve ever seen in the democratization of money. And it will make for a much, much more equal and fair world in my opinion. But the fact that it succeeds, it’s not a given. It could still fail. So, I decided that I want to spend the rest of my career helping Bitcoin succeed. I don’t see this as a job where I am running a company to make the company grow and make money. That’s not what motivates me. What motivates me is when I am old and hopefully my grandkids come and ask me, “Hey grandpa, what did you do with your career?” I want to be able to say, you know what? I was part of a large group of people who help Bitcoin succeed and for me the best way to help it succeed.
I see Xapo as a platform to help Bitcoin succeed. And, with Xapo, we focus on what we see as the biggest bottlenecks to success, which right now in our opinion, are security. Make it so it’s very safe for you to hold bitcoin, to buy bitcoin, receive, send and hold bitcoin. And an ease of access. Today there’s a lot of friction between someone deciding that they want to own bitcoin and actually getting those bitcoin. And it is different challenges in each country. How do you turn cash into bitcoin in India is very different than in the US and is very different than in Turkey. It’s very country-specific or with a local bank transfer, etc. Xapo is an instrument to help Bitcoin succeed where we focus on what we see as the biggest friction for Bitcoin to become what hopefully will be the most widely held asset in the history of humanity.
Laura Shin: 18:08
And when you were talking about how converting the bitcoins to local currency is different in different countries like Turkey and India. Do you have to get special banking relationships in each of those countries for people to use your services there?
Wences Casares: 18:27
It depends on each country. There are countries where you can do it without a banking relationship. It depends on the current infrastructure of the country. There are countries that have very well-developed cash collection networks, cash collection and cash disbursement networks and those networks already are used to doing cash collection or disbursement for digital uses, or for other type of spend that happens worldwide. In in those cases you can work with them without any banking relationship and in some other countries the cash collection and disbursement networks with the most capability are the banking networks. And in those countries you need to have a banking partner. But it is different in each country. It is very, very different in each country, very country specific.
Laura Shin: 19:21
And you also told me a few years ago that 96 percent of your customers account for four percent of the dollar value of the transactions and that four percent of your customers account for 96 percent of the dollar value of transactions. Or some ratio like that. Are those ratios still the same today and if so, why does it break out like that?
Wences Casares: 19:41
We serve a lot of institutions who want to hold bitcoin. Some of them make it public that we are their custodian, like the public instruments to hold bitcoin in the US. Like GBTC in the US or XBT in Europe or CBD in Canada. They all have to to make their custodian public and they’ll use Xapo as the custodian of their bitcoin. We have many other customers like them who have very large amount of bitcoin that may represent anywhere from $10, $20, $50 million. And sometimes in excess of $200 million. So those customers are a very small percentage of our customers, but they represent a lot of the bitcoins that we have in custody and that’s why it’s so concentrated mostly because of these institutional customers who have very, very large amount. So imagine how many. If we have some fun who has $200 million in bitcoin, that would represent a couple million customers in Asia. That’s why it’s so concentrated.
Laura Shin: 20:51
For the smaller customers, like the ones in Asia that you mentioned, what are they using Xapo’s services for?
Wences Casares: 20:58
Mostly people are using it as a way to buy bitcoin and hold bitcoin. We’re not seeing a lot of bitcoin payment activity at the retail level, or in small transactions. Most of the payment that we see, it’s cross-border. Where someone from one country is paying someone else in a different country. It’s hard for us to know exactly what they’re paying for. Some of that could be remittances, but alot of that is cross-border goods and services.
Laura Shin: 21:33
I believe a while back you also said you thought people were using them for mobile phone payments, but has that changed now that the fees have risen?
Wences Casares: 21:41
Yes, we’ve seen a lot of payment use cases slowdown or almost disappear because of the higher fees. We have a lot of transactions that happen within Xapo. Because the Xapo to Xapo transactions don’t need to go through the blockchain so they don’t. They can happen in real time and for free. So today we see about 20 Xapo to Xapo transactions for every transaction that we run through blockchain.
Laura Shin: 22:14
Now let’s talk about your storage solution. How do you store the bitcoins that your customers entrust to you?
Wences Casares: 22:20
We keep 97 percent of all the bitcoin we have in custody in deep cold storage. Which means that it sits on servers that have never been online and will never be online. That are inside a vault, deep underground in different types of bunkers. We have five bunkers globally. We make public our main bunker and vault location in Switzerland, but we have other bunkers in other continents. And basically, to take bitcoins out of the cold storage, we work with scheming, which each bitcoin address that we control has five private keys of which three are needed to move the keys. We did it that way so we can lose two locations to natural disaster or theft and still have the ability to move the coins to a safe location or a safe address for whatever reason we thought that that address wasn’t safe anymore. So we have five private keys for each address and we keep each private key in a different location. We’d run a process daily where we send transactions to be processed, basically withdraws from the vault. And, we need to get at least three of those signatures back to be able to move the coins. It’s a very manual process.
Laura Shin: 23:49
Well, I was just wondering how you prevent employees from stealing customer’s bitcoins.
Wences Casares: 23:53
The process is designed assuming that you could have not only one, but a number of rogue employees that could collude to try to get bitcoins. So all the processes are set so even if you have a bad actor or a number of bad actors that are coordinating, they cannot take bitcoins out. So not one person can access the customer’s Bitcoin by themselves.
Laura Shin: 24:28
Do you worry about Xapo being undercut by some new competitors that are coming online? There’s a new custody solution coming out from Coinbase, Coinbase custody and Ledger the hardware wallet is coming out with ledger enterprise. There’s actually another one in stealth mode. Do you worry about being undercut by these competitors?
Wences Casares: 24:51
No, not really. I think that at this stage, it’s a very nascent industry and we need a lot more people doing what we’re doing to really make sure that the entire world is using bitcoin. I would worry we were the only ones because I think bitcoin will have a very small chance of succeeding if there’s only one decent custody solution. So I think we need a lot more. I used to run an online bank in the year 2000 in Europe. We were the first one serving the European market and we were spending a lot of advertising dollars on TV basically to get people to have an online bank account that paid a lot of interest. And the money that we didn’t have to spend in branches. We spend it on advertising and paying more interest. And this worked extremely well and because it worked really well, we had a lot of large banks copy us. And our first reaction was, “Like, oh my god, this is gonna destroy us.” We’re going to share this pie with a lot more players. Very, very aggressive. All of them, they were all spending more than we were spending on TV advertising.
But our numbers keep getting bigger every week and it was like hard to understand what’s happening. How can it be that we have one new competitor, two new competitors, each one spending more than we’re spending. Three competitors now. All of them spending each one of them more than we were spending and the numbers keep growing. And what happened in that case, is that that this was a new category and more players advertising it heavily created a sense of, sort of created a category. It made the market realize that this was an option to have an online bank account where you put your savings because you have better return, etc. And I feel the same way with Bitcoin, I think it’d be very hard to make this market happen and if we were by ourselves or if any company was by themselves, it takes very large ecosystems of trustworthy companies to make something like this happen.
Laura Shin: 27:03
And why not offer your custody solution for more than just bitcoin?
Wences Casares: 27:07
Right now I don’t have the conviction I have for bitcoin. I haven’t developed it for any other crypto asset. And, I can explain to any of our customers why I think it’s a good idea to own a little bit of bitcoin, but very often I can’t explain why I think it’s a good idea own something else. So I just don’t want to be responsible for making people make bad financial decisions. If at some point that changes. There is a crypto asset that seems that has the same risk, reward and potential that bitcoin has, I’ll be happy to serve it, but right now I do not feel like that for any other crypto asset.
Laura Shin: 27:50
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Laura Shin: 29:24
I’m talking with Wences Casares, the CEO and founder of Xapo. Wences you supported the segwit2x hard fork and when that failed, you tweeted quote, “Bitcoin’s, most important quality is its censorship resistance, the rest will follow. I got too impatient with 2x. Pictures also took too long to download in the early internet. Bitcoin will eventually be able to process more payments.” The day you tweeted that, I actually I did the numbers. The transaction fees were on average $10.37 and within a few weeks the bitcoin price skyrocketed. Rising to nearly $20,000. And with all that activity in the blockchain, the average transaction fees also skyrocketed and they rose to as high as $59.70 on December 22nd. Since then they’ve come down to about $8. Do you think it was a mistake to not go through with the segwit2x hard fork? Do you think that your side was proven right that the hard fork was needed at that time?
Wences Casares: 30:27
No, I think that our side was proven wrong in the way that we wanted to do that block increase. I still think that he may be a good idea to increase the block size so we give more time to the second layer solutions to be market ready. But I think that the way we were trying to do it was a wrong way to go about it. And, for me the biggest learning from the failure to operate is that protocols have a very different way of evolving than companies. And even if we have a very good intuition for the timing of companies and for the cadence of companies and to get a sense of something has traction or less traction in the context of a company is very, very different from having the same intuitions or correct intuitions for a protocol. If you look at technology overall and you look at the companies have been the dominant companies in technology over the years.
It used to be that Intel was a dominant company. We had a time where Sun and Oracle, were the dominant companies. There was many years in which Microsoft was a dominant company. Another one was Google being a dominant company. Now, we have this, this landscaping which Facebook, Apple, Google and Amazon are very dominant. But, it’s hard to find a company that has had that dominance for more than 10 years. It’s quite fluid and changes very dramatically, very dynamically, very quickly. And when you look at the same landscape for protocols, it’s completely different. You know, we started using Ethernet protocol 40 years ago or 30 something years ago. And still you have cables at home, it will be hard to find something different than that ethernet. And same thing for tcp/ip protocol that powers the internet or http for the web or smtp for emails. Once these protocols get established, they stay there forever. They don’t change the way companies do.
If you, as a journalist, Laura had to report on the evolution of ethernet or smtp, it would’ve been a very boring job for a report to say. Right? Because it took a long time and every day there’s a little bit more of everything, but nothing really great to report on. Oh, there’s more users, there’s a little bit more capacity, there’s more usage, what have you. And I think that Bitcoin, it’s a protocol. It’s not a company and it’s developing more like those protocols than a company. And, if I am impatient, that’s my problem. That’s not Bitcoin’s problem because it has all the patience in the world. It doesn’t have a board. It doesn’t have capital. It doesn’t have earnings. It has all the patience in the world. And if you are impatient, that’s your problem, not the protocol’s problem and that was for me the biggest lesson from the way we tried to do the block increase. So I’m not concerned about the level of fees today. I think that eventually Bitcoin will be able to process all the transactions that people may want to do there. And they will do them very quickly and very cheaply. Just may take a little while, just like it took a little while for the internet to power Netflix. There was for many years in which that seemed impossible, but it would have been wrong to bet against the internet because of that.
Laura Shin: 33:55
So you’ve talked about how impactful you think Bitcoin will be in the developing world, but now with these ranging from $8 to $60. What kind of impact do you think Bitcoin will have there?
Wences Casares: 34:08
I think this doesn’t change things. I was never pitching Bitcoin for payment. I always said that I think that the first stage of Bitcoin is to get established as a store of value and once hundreds of millions of people own bitcoin as a store of value and more people own bitcoin than ever owned gold or dollars, they will naturally turn into an important payment mechanism. But this first stage, which may take another five years at least, and maybe a decade. It’s all about a store of value and you have never heard me pitch otherwise. So I am as concerned with fees today as I was four years ago, which is not really care about them now. And by the time it becomes a payment mechanism, the fees will not be a problem.
Laura Shin: 35:01
Well, when it comes to being a store of value, you’ve often made that pitch because it’s scarce and there will never be more than 21 million bitcoins. But how well does that argument hold up now that we have bitcoin cash, ether, zcash, monero, all these other crypto assets? Do you still believe, and you’ve said this before, that you believe bitcoin will someday or could some day be worth $1,000,000. Do you still believe that?
Wences Casares: 35:26
I still believe that Bitcoin, there’s a higher than 50 percent chance that bitcoin will be worth more than a million dollars in 5 to 10 years. And I think that, as you know, there will never be more than 21 million bitcoin. And bitcoin cash and all the other 800 cryptocurrencies do not change that. We are all learning and there are a lot of things that we have to figure out, but in my opinion the market will eventually figure out that Bitcoin is in a league of its own when it comes to how much we can trust it. And the censorship resistance and the robustness of the protocol overall. And I think we’re going through a period in which we’re all learning and doing a little bit of discovery of new things. Not unlike what happened with the dotcom boom. Where there were a lot of assets that were overvalued and even within those assets there were gems that were undervalued. But I think we’re seeing the same process here.
Laura Shin: 36:34
Well, let’s talk about Bitcoin Cash. Even some of the diehard Bitcoin core supporters admit that bitcoin cash is now trying to fulfill the original vision of the Bitcoin whitepaper. Which is the version of Bitcoin that you originally fell in love with. So why don’t you support bitcoin cash?
Wences Casares: 36:54
I would put it another way, which is why should I support it? if you tell me well, because you want to do cheaper transactions. I’d say I’d rather use litecoin than bitcoin cash. It’s cheaper and it’s faster than bitcoin cash. So with protocols it doesn’t really matter which one is the best protocol. It only matters which one is in the most in use. And in the case of Bitcoin in particular and crypto currencies, I would say the only things that matter, the hashing power, #1. The number of users #2. The number of transactions #3. And in those numbers, Bitcoin is in a league of its own. So, I could make the pitch that I have a protocol that competes with email that is much better than the email protocol because the email protocol doesn’t handle spam very well and you cannot prove the identity of the sender and it’s pretty poor to handle attachments, video, and voice, etc. So it’s not hard to come up with a better email protocol. It’s quite easy actually.
It just hard to get people to use it. The same thing with this. It doesn’t really matter. It’s hard for me to, I think it’s a mistake to engage or follow a currency just because it may have temporarily better functionality. A lot of people made that mistake with the internet where they bet against the internet for other protocols because supposedly the internet was never gonna be good enough for video or good enough for voice or good enough for a number of things. And they were wrong. And I think the same is true with Bitcoin.
Laura Shin: 38:31
And what about Ethereum in terms of the different kinds of characteristics that you were seeing were important to look at it? I mean, I think Ethereum would score well on those. There’s definitely an extremely vibrant developer ecosystem. Obviously, there’s a lot of users and we’ve already seen this past year, just how quickly things can take off in Ethereum such as with initial coin offerings, and the crypto Kitties. So definitely there seems to be a lot of activity on that blockchain. What do you think about Ethereum?
Wences Casares: 39:03
I think it’s maybe the most interesting thing going on in the space outside of Bitcoin. I think that there are a number of companies developing the technology, so all of that functionality that we learned through Ethereum wIll eventually be able to run on top of the Bitcoin blockchain. We forget now, but at the beginning of the internet, there were people who were betting that we were going to use the internet only for low latency, low bandwidth applications like the web and email. But for high bandwidth applications we were going to use X25. For low latency applications, we were gonna use frame relay. Which was saying we’re going to have one network for the web, another one for Skype, another one for Netflix. And that, even though it may make a lot of technical sense. It didn’t happen that way you know.
There’s only one transport layer that matters in the world today and that’s tcp/ip or the internet. Everything, whether it’s voice, video, data of any kind. If it’s moving, It’s most likely moving on top of tcp/ip. I think the same is true for value. If something settles in any form of value, eventually it will have Bitcoin underneath. And it may happen in higher layers, but its most likely it will be one prevailing blockchain for value. There may be other blockchaIns for things that do not have to do with value. But today, Bitcoin is in a league of it’s own in terms of being something that is really trustless and it’s really uncensorable and robust. So, I think we will learn a lot from other crypto currencies, including Ethereum, but a lot of the best lessons will be implemented on top of Bitcoin.
Laura Shin: 40:52
And why do you think it will happen that way rather than Ethereum just continuing to grow because it already has so much traction?
Wences Casares: 41:00
Bitcoin makes in a week more users than Ethereum made it in his lifetime. Actually more uses than all of the other cryptocurrencies made in a lifetime. Ethereum is still controlled by a person. They’ve already shown that they can change the blockchain by just saying so. That is very, very, very far from Bitcoin. Where the only blockchain that has a combination of hashing power and that is distributed enough where there’s nobody really who can change it or control it. At the core of any blockchain, how is a blockchain different from a database? It’s because nobody can control it. The only one who’s really not controllable around censor or (inaudible) today is Bitcoin. It may be that you’re right Laura and the future is not written. I’m just giving you my opinion. It may be that it plays in a different way. I just don’t see it. It’s hard from where I sit to believe that.
Laura Shin: 41:58
Yeah. And I don’t want anyone to think that the question that I asked is my opinion or my view that it will happen that way. When I’m looking at how things might go going forward, I can see it going in the way that you outlined. However, I definitely cannot ignore how much traction Ethereum has. And so, I sometimes wonder, oh, is this going to eclipse Bitcoin? You know, I don’t have a particular opinion about how it’s going to go, but I could see it happening either way.
Wences Casares: 42:33
At the very beginning of the internet, there were non internet services like AOL and Compuserve who made very similar arguments. It’s like, “Look, the internet is cute, but it’s very slow and complicated and so just use Compuserve or just use AOL, don’t use the internet and we will give you graphs and we have these cute sounds and even some video and all the things that the internet cannot do.” And it’s true. For a period of time they were important. But open always wins in technology. And, in this case open and uncensorable and completely trustless. So yeah, there may be a time where there’s a place for that. It’s hard to imagine a world in which we need multiple protocols for the same thing.
Laura Shin: 43:27
One other thing I wanted to ask you about was I think in your video with Daniel Schulman of paypal, you outlined a vision where Bitcoin is used as the global standard for foreign exchange. Can you describe that vision and then also describe how we get to that point?
Wences Casares: 43:44
I think that if Bitcoin succeeds, it will become a global standard of value and a global standard of settlement. We had a global standard of value for 5,000 years and we haven’t had one for about 500 years. For the last 500 years, the global standard of value have been the currency of the dominant power. The first one was the Portuguese for about a hundred years where their currency was used globally. Then after that, the Spanish, then the Dutch, then the French and now the American dollar for about a hundred years. Before that, gold was the value and gold is the one that resembles most Bitcoin in that it wasn’t controlled by any one country and It was truly apolitical. The way Bitcoin is apolitical.
We take it for granted today that if we want to make a comparison of, like I said in that in the talk, if I want to compare the square footage of the first cabin my grandfather had in Patogonia back in 1940, with the square footage of some grandparent of yours Laura, who came to the US and had a cabin or a house somewhere. It’s very easy to compare the square footage. Your father had a house that was 1500 square-foot and my grandpa had one that was 1000 square-foot. When we want to compare how much they paid for it, even if we have access to exact amount they pay, we have to adjust that number to compare them. And we can adjust them to inflation. And in inflation we have to choose the inflation of the currency that we’re using or we can turn it into some other, into gold at the time. There are many different ways we can adjust it and in choosing the way we we’re going to use, is somewhat subjective and therefore the final number is somewhat subjective. Where the result being that the comparison that we are doing of value is a very subjective comparison and it shouldn’t be. It should be as objective as comparing square footage.
And today we can’t do that and I think a world in which Bitcoin succeeds. It’s one in which Bitcoin becomes this non political and objective measure of value. That when you ask for things that matter globally like the price of a currency, the currency is priced in Bitcoin and commodities are priced in Bitcoin and an international trade is done in Bitcoin. It doesn’t mean that any currency in the world disappears. It just means that the meta currency that connects all of those currencies is now a non political currency. With non political value and with non political settlement. Where absolutely anyone can settle in that currency on a Sunday at 2:00 AM with anyone. And that’s new. That has never happened before and it will be very powerful.
Laura Shin: 46:46
Yeah. But a lot is going to have to happen for us to get there because right now the value of Bitcoin at least in US dollars is extremely volatile. So, I would not imagine that would happen. I mean, you and I are roughly the same age. I think it would be near the end of our lifetimes or something. How do you think we’re going to get there? Don’t you think it will take quite a long time?
Wences Casares: 47:10
Yes. I think it will take a long time for Bitcoin to fulfill that function. It needs to be worth trillions of dollars. So, that’s why I think it’d be worth more than a million dollars a coin and the only way to get from $10,000 or whatever bitcoin is worth to a million dollars is, the only safe way, is with this kind of volatility. I think there is no safe way to get there in a smooth way because volatility is what keeps people from putting money they shouldn’t put into Bitcoin. And that the worst thing that could happen to Bitcoin is people put money they shouldn’t put in there. So I imagine many years, perhaps decades, which BitcoIn keeps going up with this monstrous volatility and then once it gets to occupy that place, it slowly has less and less volatility. A sort of a copy paste of what we’ve seen for the last nine years. You copy paste it 2-3 more times in 10, 20, 30 more years and you get there. It’s a very boring way to get there, but it’s the best way to get there.
Laura Shin: 48:17
Well, maybe for journalists, it’s not a boring way. At least the journalist who write about price movement. On the way there though, don’t you think that it would start to pose a threat to central banks and governments?
Wences Casares: 48:31
No, I don’t think so. I think that the one country that would lose the most, which is the US, because it would replace the dollar as the global reserve currency, but at the same time, the US is the country that is better positioned to take advantage of the pros of Bitcoin. It is probably the country that can take the most, just like it took the most upside out of the internet. The US did. It’s likely to take the most upside out of Bitcoin. So, net net it is not clear for me that it will be negative. I think that the US can still come out ahead. And, when you look at policy makers around the world, I haven’t seen one policy maker believe that their role is to prevent Bitcoin from becoming a standard so their currency doesn’t suffer. It’s just like it didn’t happen with gold before, I don’t see within governments a person or an office that has the responsibility from this not happening. On the contrary, when you look at what the financial regulators are doing and law enforcement, they are all advancing in the same direction. Which is they all start a little scared about Bitcoin. As they learn, they learn how it can be regulated. How for the economy, it’s better to have money in Bitcoin than it is in cash, etc. So all of the progress we’ve seen in regards to regulators and policy makers in the last five years has been a very positive one and I expect more prevalence in the same direction, not the opposite direction.
Laura Shin: 50:16
But what about in China where we’ve seen outright bans on Bitcoin exchanges?
Wences Casares: 50:20
China could have made it illegal to own bitcoin and they have not chosen to do that. It is legal for Chinese consumers to own bitcoin. I think that the Chinese government had a concern about the free trading and they stopped that. And I think that is a sensible policy. They also have a concern about anonymous trading, so they want to make sure that the people who are trading have a proper KYC and AML just like you would in any bank. I think that those policies are very sensible. But none of those policies ever went against Bitcoin. In a country that decides what websites you can see and you cannot see and does that quite effectively, it would be very feasible for them to say Bitcoin is illegal and they haven’t chosen to do that.
Laura Shin: 51:12
And what about in Argentina? How is Bitcoin used there today and has it been used… hasn’t it been used to sort of circumvent governmental controls?
Wences Casares: 51:25
Yes it has been used to send money to Argentina or get money out of Argentina when it was complicated to do that. I think that today Bitcoin is more important for Argentina than Argentina is for Bitcoin. Meaning, if you are sitting in Argentina, either at the bank or the government bureau, the Bitcoin activity matters to you because it’s non trivial. But if you’re sitting in the Bitcoin ecosystem, all of Argentina’s volume is sort of not material for Bitcoin.
Laura Shin: 51:56
So you’ve been thinking about or working with Bitcoin for seven years now. What lessons do you feel you’ve learned over that time that you keep in mind as an entrepreneur, as this space continues to develop?
Wences Casares: 52:08
I would say the most important lesson is the one I told you before that Bitcoin is a protocol. It’s not a company, and it has the timing and the rhythms, the needs of a protocol which are very different from a company. I would say that’s the most important lesson that I summarizing in that tweet that you read. Which is I think that Bitcoin’s most important quality is its censorship resistance and that everything else will follow from that.
Laura Shin: 52:37
Great, I’ve been speaking with Wences Casares. It’s been fantastic having you on as a guest. Where can people get in touch with your or see your work?
Wences Casares: 52:37
Laura Shin: 52:46
Great. Thanks so much for coming on the show.
Wences Casares: 52:49
Thank you, Laura. Thank you for having me.
Laura Shin: 52:51
Thanks so much for joining us today. To learn more about Wences, check out the show notes contained inside the episode in your podcast app. Also be sure to follow me on twitter @laurashin. New episodes of Unchained come out every single Tuesday. If you haven’t already, rate review and subscribe on itunes or wherever you get your podcasts. If you liked this episode, share with your friends on facebook, twitter, or linkedin. Unchained is produced by me, Laura Shin. With help from Elaine Zelby and Fractual Recording. Thanks for listening.