Crypto VCs at Consensus Envision Token-Based Future

Seasoned reporter Paul Vigna, who covers cryptocurrencies and blockchain at the Wall Street Journal and who also co-authored a fine book on the subject, The Age of Cryptocurrencies, sat down at Consensus with VCs Balaji S. Srinivasan and Fred Wilson to discuss the business realities that may ensue “when (cryptographic) keys can act as currencies.”

Srinivasan recently became the CTO at the Coinbase cryptocurrency exchange after it acquired Earn.com, where he worked as CEO. He is also a Board Partner at the VC firm Andreessen Horowitz and an “occasional” teacher at Stanford.

Fred Wilson is a veteran VC and partner at Union Square Ventures

Vigna began by asking the two VCs to comment on recent “colorful” comments by Nouriel Roubini and Warren Buffet, who have lately “doubted down” on their criticisms of Bitcoin and crypto.

Wilson began: “Calling it rat poison suggests they haven’t really taken the time to think about it.”

Cryptocurrencies and digital tokens are misunderstood, said Wilson, because they are not just “a new asset class” but are “adding layers to the Internet.” Crypto tokens, said Wilson, “are just the fuel that light up this stack.”

Srinivasan noted that other credible figures such as Christine Lagarde and Larry Summers have “devoted multiple public statements” to arguing “there’s something of merit here.”

Regardless of the high profile attacks, “a lot of progress is being made,” said Wilson as he pointed at the volumes of people in the Consensus audience.

Vigna pushed the idea. “Buffet does have a track record,” he said. “I think you can make a case…beyond saying ‘Warren doesn’t get it.'”

Wilson said his firm’s VC undertakings use a different model than Buffet’s.

“Our business is making highly speculative bets knowing many of them will go to zero…I’ll overpay for some, underpay for others.” He said. “I’m gonna get 100X on some.”

Wilson also said that Buffet looks for investments with real world assets and cash flow. In the ‘token economy,’ on the other hand, said Wilson, “value is going to accrue to the token…It’s in the token. It’s not cash flow.”

“That doesn’t feel stable,” said Vigna.

Wilson took it a step further.

“It’s worse than that; you could fork the network and take the entire worth with you…We haven’t seen that, but I think we will…”

Srinivasan politely disagreed, stating that heavy forking of blockchains is inhibited because, “when a fork happens, millions of backlinks need to be updated” including wallets and exchanges already synced to the old protocol. Users dedicated and accustomed to a particular currency are unlikely to defect to a forked network without good reason.

Wilson countered. “I think we’ve already seen it with Monero and Bytecoin.”

Wilson said cryptocurrencies are also exciting because of the open-source nature of a lot of the code, whereby successful innovations like privacy-enhancing code from ZCash (zk-SNARKs) have been migrated over to other chains.

Srinivasan said he sees social networks built on cryptocurrencies becoming discreet “social economies,” and that mass adoption will come when the tech is accessible and “useful.” When VR (virtual reality), for example, becomes useful, “a lot of your life will be lived in the matrix…and the natural form of exchange is gonna be a cryptocurrency,” he said, although that reality still has to be built.

Wilson noted, “We’re seeing the reemergence of private currencies…Now, anybody can spin up a currency.”

“How many people in this room have spun up their own currencies?” Vigna quipped. Parts of the audience cheered as quite a few hands went up.

“From the dorm room start up to the dorm room denomination,” joked Srinivasan.

“I love that!” said Wilson.

Srinivasan went on. “Blockchain is turning everybody into a venture capitalist.” Wilson said he sees the whole stock market migrating there. “I think the next Nasdaq is gonna be built natively on cryptocurrency…I don’t know how you can put the genie back in the bottle…”

“The Internet will become the world’s biggest stock market,” said Srinivasan. “Where basically anyone in the world can put…money into crypto.”

“Speaking of the next stock market when is Coinbase’s…IPO?” joked Vigna.

Srinivasan smirked: “Your guess is as good as ours.”

“Can I quote you on that?” asked Vigna.

Some Background:

According to Nathaniel Popper at the New York Times, representatives from both Union Square Ventures and Andreessen Horowitz met with SEC officials in late March and asked the regulators not to class Ethereum as a security. Both firms are significantly invested in Ethereum-based startups and documents at Techcrunch indicate that Andreessen Horowitz has been looking to create a dedicated crypto-investment fund.
The SEC has publicly given a pass to Bitcoin in this regard. Bitcoin differs from Ethereum, however, in that it’s founder is anonymous, he or she created no private company and did not premine coins before circulating the Bitcoin mining software.

Having Ethereum classed as a security, reported Popper, would involve, “significantly more oversight (and) could cause a significant drop in the value of Ether.”

 

 

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