Ep 100 | The Web’s Next Great Leap | A Conversation with Chris Dixon

Speaker A: All new technologies tend to do two things. They tend to do old things better and new things you couldn't do before.

Speaker B: Hi, I'm Jeremy Allaire, and this is the Money Movement. We have a very special guest and a very special episode. Uh, for those of you that have listened to the podcast over the years, this is our hundredth episode of the Money Movement. And I'm really thrilled to be joined here in New York City, uh, with, uh, Chris Dixon. Chris.

Speaker A: Hey, Jeremy.

Speaker B: Amazing to have you.

Speaker A: Uh, thank you for having me.

Speaker B: We've had conversations on these topics for over 10 years. Um, and I think, uh, one of the things that I often hear and I hear about you and I hear also in reference to sort of me as well, is we both come from a background of working on earlier stages of the Internet. And you speak and write about that, obviously, as well. And I think one of the things I find, um, that's really often most helpful for people who are trying to think about crypto and who are trying to think about this particular technology epic that we're in is how do we think about the earlier epics of the Internet, um, and their application today? Um, lots of places to go with that, obviously, in terms of the conversation, but maybe one starting point would be, where are we relative to Internet 1.0 or web 2.0? And obviously, let's just say web 3 in this case. Where do you feel like we are in that cycle? And is that even a useful framing? Uh, because the Internet's evolved so much, it's difficult to exactly juxtapose in that way. But, um, I'd love to just start with your view of kind of where we are in the epic relative to past Internet epics.

Speaker A: Yeah, I mean, so, like you, Jeremy, I got involved with the Internet, uh, in the sort of 90s, and for me, in earnest in the early 2000s, um, inspired by the idea that the Internet was this open, decentralized network that anyone could access that sort of the money and the control went to all the users and the creators and the software developers. And that was very exciting to me. Um, over time, I believe, and I argue, and I think most people would agree, that the Internet has become more consolidated. Um, if you look at the kind of the. The traffic figures, for example, it's something like 90% plus of the social media and search traffic go to the top five sites. Similarly, the 90% of the money that kind of flows through the system goes to a very small number of big tech companies. Um, and generally, I think that's A bad thing. It's become overly concentrated. We've lost a lot of the original vision. Um, it's less open. It's harder for software developers to build businesses. It's harder for um, creators to earn a living. Um, it's harder for small businesses. And I think that's generally a bad thing.

Speaker B: Right.

Speaker A: Um, and I go through, in my book, read, write, own, I go through sort of in detail the history of that and how that happened and sort of how sort of good intentions and people trying to build interesting things led to this consolidation, which happened because as I sort of argued, these sort of big companies had network effects and other kinds of uh, scale effects that sort of led to this rich get richer phenomenon. Um, I think today there's sort of two ways to look at the Internet. There's I would call the more cynical way, which I think is actually the more common view in, in the public, which is the Internet has matured. It's like similar to how the automobile industry started in the 1900s with thousands of car companies. Um, and then eventually there were like Ford, GM and a few others. Right. Maybe now there's some renaissance oil companies. Yeah. Like most industries eventually mature and consolidate. And I think that's sort of the cynical view of the Internet. Right. Is that it's now mature and it's over and sure, we'll build a lot of new things.

Speaker B: There are robber barons of the Internet.

Speaker A: That's right. Yeah, that's exactly. So that's. Yeah, the Googles and Microsoft's and Facebooks are exactly that. The Carnegie's or something of the Internet. The only real remedy is things like antitrust, which we're seeing activity there. Um, and that's sort of, that's kind of what I would call the cynical view. Um, and I think that view also allows for technology innovation. But it's more like AI, which is

Speaker B: more of a kind of, it's industrialized.

Speaker A: Yeah. And it's like the big companies get even bigger essentially because they build these giant data centers and you need $10 billion.

Speaker B: Exactly.

Speaker A: I think the other view, which I would like to believe and do hope for, is that the Internet is different than other industries and that it's a software based, uh, it's a software based network. It's a network that's software has the feature of being highly malleable, highly very plastic. Software can reinvent itself in a way that hardware can't. Um, and we've seen that over and over in the history of software with kind of new, I think of software And I talk about this in the book as more, uh, it's almost a mistake to sort of analogize it to engineering fields like bridge building, where you're much more constrained, uh, in the degrees of freedom of what you can do. Software to me is much more like a creative activity like writing novels and new genres emerge, new movements emerge. And the movement that we're part of, the crypto blockchain movement, I think of as the most interesting and important kind of movement of the last 10 to 15 years, which is a new, it's a new way to think about software. It's a new software, it's about new software architectures, new ways to design things with this specifically important feature of what blockchains. And this is kind of the core argument of my book, what blockchains really are is a new way to build Internet services that are architected in a way that there's no gatekeeper and no toll keeper. So in your case, your company circle, you're building a network that involves money, dollars, but the key, the sort of salient feature of the network you're building and how it's different than let's say Visa's network or traditional open permissionless infrastructure which has all these other implications. And so, so just quickly in the book, sort of the first third I go through the history of this, how this happened. The next third I talk about these blockchains and these blockchain networks and all the kind of different properties and why they would, why you would prefer your solution to Visa. And then the last third I kind of go through specific applications, including, including your application, um, and try to tease out the specific possibilities of what could happen in the future.

Speaker B: Yeah, well, it's um, I think this, this idea that, you know, this is a new infrastructure layer for the Internet, it's obviously software, fundamentally software powered, although there's a hardware piece of all this too. Um, yeah, that was really what drew me to this 1112 years ago and sort of a belief that open source communities of developers that were contributing could continuously improve this infrastructure out in the open. And so I think they're, this is an open source LED phenomenon which is really fundamental. I think we've had various degrees of orientation of the big tech companies to open versus close. Famously Microsoft was super closed then Google tried to be the more open, uh, company and Facebook's had their own, uh, efforts at trying to do both. But this is all out in the open. It is fundamentally all out in the open. Uh, with some exceptions, obviously. Um, I think as a technologist and as someone who looks at the technology, one of the things that people grapple with, and this is I think actually a lot of people who are just innocently trying to figure out, well, what is this, how is this better? The Internet does all these things, how is this better? And um, I often times try and start by talking about the technology solving problems that the Internet couldn't solve before. The uh, shared state. We have this ability to have trustless, uh, shared state or transactions on that state without depending on anyone or compute. That's verifiable. There's these technical things that are possible that these blockchain networks allow for, but a lot of times that's techno speak. I think if you're oriented technically you go, oh, that's really powerful. That makes a lot of sense. I can see what you could build with that and how that's different. But when you kind of characterize like fundamentally, let's just say we are where we are today, or just Fast forward even 12, 24 months and blockchain network infrastructure is at state X. What do you believe are the kind of step function things that people can build that are these fundamentally better designed applications, utilities, protocols, uh, a lot of different categories. What are those? And kind of maybe in some ways do like the Coke versus Pepsi or whatever it is. Like there's the Uber version here and then there's the Uber version over here and talk about that. And obviously if there's current apps that you're super excited about that manifest in this way, it would be great to talk about that too.

Speaker A: Yeah, I mean, so a framework I like for technology is a. All new technologies tend to do two things. They tend to do old things better and new things you couldn't do before. And it's useful to separate those two things I find especially with kind of uh, software innovations. So old things better. What does that mean with blockchains? It means for example what you're doing, which is old things paying people with dollars, but you're doing it better. And a big benefit is the economics of it. Right. So if you're a uh, buying a hotel room, a significant or a piece of digital art or music or just anything on the Internet, a significant portion, you know, two and a half percent roughly typically goes to just paying for moving trillion dollar tax on the global economy. A trillion dollar tax on the economy. And that can be really meaningful in certain industries that are lower margin. So that's old things better. So you can do and, and you know, a small software developer wants to build an application that used that, that involves money and paying people and paying people in the countries that don't support dollars. Things like, like better global distribution, better economics, better participation. So then those are very, I think, clear benefits of stablecoins over the traditional payment system. Um, now then, so that's sort of old things better. Then there's new things you couldn't do before, and those are always harder. This second category is always harder to imagine because it takes 10 plus years to figure out. Totally. So let's take mobile smartphones as analogy. When smartphones came out 15 years ago, old things better. Well, now you can do shopping and social networking on your phone instead of on a desktop, but new things you couldn't do before. That was the Uber and Snapchat. Ah. And look, the reality is the mashup

Speaker B: of new things that were just. Weren't. Aren't possible. Yeah, they just weren't mutually compounding things that just happened.

Speaker A: That's right. And I'm going to give you some speculations on that. But like. Yeah, but the reality is it usually takes time for that to play out because entrepreneurs are very creative and they're more creative than I am and I wouldn't have thought of all the ideas.

Speaker B: I use the exact same analogy when I explain this. And I often say, like, we haven't hit the iPhone moment, meaning the surface to build on isn't quite there, but we're darn close.

Speaker A: That's right. That's right. I think we're getting really, I think it's really close. Yeah. Um, but so new things you couldn't do before. Just to give you some speculations, um, with your kind of Internet digital money, I think you could do interesting things where m, instead of having a person pay a business, you could have a machine or AI system, pay another AI system.

Speaker B: Machine to machine.

Speaker A: Machine to machine.

Speaker B: Payments, financial activity.

Speaker A: That's right. Micropayments, very small payments. So you, you know, maybe you have a system where you're, you know, you visit 10 different media sites that month and then the, and then your software on your client divvies it up, tying

Speaker B: together the physical world, human activity and economic, uh, Value.

Speaker A: Yeah, exactly. And then just more broadly in the blockchain area, there's a whole bunch. This is what I kind of go through in the third part of my book. I think there's a whole bunch of new ideas sort of that, for example, entrepreneurs that we've invested in are building. Um, so as an example, one area I'm very excited about is this idea of in a post generative AI world, a world where anyone can push a button and create a movie and create a story, how do you, what are the business models for creative people? And so for example, we have some interesting investments where um, they allow communities of people to come together and create intellectual property and the system will automatically sort of say this person contributed this much to the new narrative universe you created and this person created m this much. And then as the that intellectual property is reused around the Internet, people pay for uh, using it provenance and the money cascades back to the original sort of people creating it. So it's a way to kind of track copyright intellectual property provenance in a way that's aligned with the Internet's desire to remix and reuse content and have sort of an open system that's very accessible, but also make sure people that created content are paid. Or for example, if your data is used for training data and AI algorithm, you should get paid today. It's very opaque. People are suing each other. It's frankly kind of a mess. A blockchain is a very good way to keep track of these things. So that's another example. Uh, obviously, uh, there's interesting stuff that's already happened around DeFi. There's interesting new systems where digital artists are creating things like NFTs and there's a whole new wave of video games that have economies that are more open and peer to peer. Um, so there's a whole kind of range of interesting things going on. Um, some of which are kind of again old things you could do better and some of which are just brand new interesting ideas that will probably kind of surprise all of us.

Speaker B: Totally. Yeah. I mean uh, the PFP stuff that happened was like uh, uh, nft, avatar stuff, Play to Earn as well, pde, uh, like all these were like these are new behaviors, et cetera. Um, I want to kind of ladder off of that a little bit and first kind of a tangent question and then I want to come back into what I'll sort of say is more mainline, which is um, this ability to kind of convene a community of people from effectively anywhere in the world and organize work and have a belonging which is credentialed, like a credentialed belonging to uh, an organization. What we talked about is Daos and Daos are still talked about a lot these on chain organizations. It's fascinating. And I think one of the things that I think about a lot is well if we keep growing the number of on chain organizations and they're using on chain money like usdc and they're, they're structuring their economic relationships on chain. When do we need better laws? And I'm not talking about crypto markets regulation or stablecoin regulation. We'll come back to policy in a moment. But do we need laws for how these on chain organizations themselves kind of manifest and connect to the real world and. Or should we just not worry about that yet? Um, I mean, we have obviously people designing daos under legal DAO frameworks in Wyoming and with LLC structures that are legal in terms of the way in which the members exist in that. But there's a lot of experimentation and I believe that a lot of this kind of new forms of work, new forms of coordination, new forms of value creation in particular in the on chain world will happen this way. And I think it could be quite big. Um, and so how do you think about that? Because you invest in a lot of different things and presumably in a sense like you participate in daos and just where do those lines need to be drawn?

Speaker A: And yeah, just to kind of put it in historical context, um, so I think of this as in sort of the context of kind of the death of Coase's theorem. So for those, there's a famous economist, I think Ronald Coase is the name, who wrote a paper, I think in

Speaker B: the Theory of the firm.

Speaker A: 30s or 40s. Yeah, theory of the firm. And the kind of question he was trying to answer is why in a capitalist market based economy, why do you have firms at all? Why do you have organizations at all? Why can't you just go out on the street and bargain and create a deal for every kind of transaction you do? And the basic idea was it would be a pain to go and do it, to sign.

Speaker B: It's information theory. Uh, I don't know. Herbert Simon wrote about it.

Speaker A: Yeah, yeah. So the basic concept was, um, because of the difficulties of transferring information and trust and a bunch of other things, we create these sort of, we do this hack and we create these organizations where the trust is kind of baked in. And so one of the things people talked about in the 90s and 2000s with the rise of the Internet was the Internet was going to sort of remove the need for these hierarchical traditional organizations and you could just sort of have this ad hoc group of people get together and do things. And you did see that play out to some extent. Like, look, open source software has become the biggest issue in my mind is open source for sure.

Speaker B: Huge development of technical ip.

Speaker A: Yeah, like open Source software went from a fringe movement to 90% plus scientific discovery.

Speaker B: Similar.

Speaker A: Yeah, scientific. Like you know, the stuff on archive with AI stuff happening there. Stack overflow, math overflow. These are like, um, you know, to some extent you could say things like doordash and Uber. The kind of gig economy stuff is like this Wikipedia. That's right, that's right. But so I think there has been stuff, but I think it's for these, the people that are true believers, like I am. Um, it's sort of underachieved in a way.

Speaker B: It is totally underachieved. Yeah, yeah.

Speaker A: Like it's. And it feels like it could do more. So when daos came along. So daos are sort of, you create, you know, similar ideas to these, but now you have sort of economic relationships on a blockchain and people can sort of organize and coordinate work and pay each other and do all sorts of

Speaker B: things having on chain money and on chain verifiable membership and obviously voting and like.

Speaker A: That's right. That's right.

Speaker B: You have corporate substance.

Speaker A: Yeah. So you can do a lot more things and that, you know, that sort of, I mean really daos started four or five years ago. People got really excited two years ago and now there's like the excitement's a little bit down, but I think it'll come back totally. But to your point, there's a really uh, kind of tough set of questions around how does kind of your. On chain relationships, transactions, trust map to the traditional legal world as you alluded to? There have been some, I think some important. There's some important developments. There's new corporate structures. So for example, Wyoming passed a law, it's called Duna. I hope that spreads.

Speaker B: UAE did something right.

Speaker A: That's right.

Speaker B: So a lot of jurisdictional experimentation, right?

Speaker A: Yeah. And so these are new kind of corporate forms that are meant to sort of uh, match and uh, I don't know, sort of align with these daos. And that's great. I think there needs to be other, there's other questions. Like you have a DAO does something like it buys a building and then there's a dispute and how do you adjudicate that dispute and what jurisdiction is it in? I think those things can all be figured out with a good faith policy process. The challenge we've had so far, we can talk about policy here, is that a lot of the policymakers, we feel like some of the early policymakers did not necessarily have a good faith process. Uh, but these are all sort of solvable problems. I think, um, And I think we'll get there and we're making progress. And as we do that will kind of, I think, uh, unlock a new wave of innovation around these ideas.

Speaker B: Yeah, I want to come back to that for sure. I believe very much in the proliferation of these kinds of organizations. And I think that uh, it'll be interesting to see if in three, four, five years, maybe it's longer, I don't know where an entity that is coordinating work and labor and output and out competing a large multinational corporation and to sort of see that. I think we will see that. Right? We will see that. One could argue DeFi is sort of doing some of that even today.

Speaker A: I think there's also like, there's a formal dao, but there's also like all the people contributing to your network, so USDC and building around it in this shared incentive. You can argue in a sense that all of those people, and I'm sure there are many thousands, if not tens of thousands, are all sort of members in some sense of an organization.

Speaker B: And we conceptualize it that way very much. Um, but, um, interesting. Okay, so that was a tangent, um, which then comes back to maybe a more central question, which is the role of digital tokens. And obviously blockchain networks and digital tokens are malleable. They can represent anything. So it's data, effectively provable data. And so there doesn't need to be a regulatory framework on just sort of like provable stored data on the Internet per se. But when we start to sort of think about digital tokens that provide economic incentives or incentives for coordination or incentives for governance, and now we start more powerful uses of digital tokens, um, which are really central to innovation and building these new kinds of more decentralized applications and the like. In that place, do you feel like there's a clear, in your mind, a clear way to delineate between, let's just say media, uh, or data and digital, uh, tokens that have this kind of combination that can sort of like Heisenberg's principle. I don't know if that's the right metaphor, but basically they can be multiple things at the same time. Right. These digital tokens that have utility, they're used for governance, they have economic incentives, et cetera. Is there a way or uh, in which you think about differentiating those in your mind? Which is a leading question on the policy side of things as well. But um, uh, but, but maybe help, help us just think about token taxonomy.

Speaker A: Sure, sure. So, and this is a, this is a great question. So this is a big question. Maybe I could frame it a little bit, which is so. So the kind of my argument, and it's not unique unique to me, but it's sort of core to my book is, uh, is that, you know, blockchains are new kinds of computers that let you do new things. And a particularly important thing they let you do is they let you have this concept of digital ownership. So that means that, uh, for the first time I. As a user. So the way that the Internet's architected today is you go to Twitter, you go to a service like Facebook, you go to a service like Uber, you log in and you may be assigned certain things. Like you're assigned. I'm given a username on Twitter, I have a follower list, I have money in my Uber account, whatever it might be. But you have very little power as a user. You don't really like. On the example of a social network, I don't really own that name. My name, C. Dixon. I don't really own my follower list that, you know, I sign up, signed in, team service. Yes. They can do whatever they want. I can't take that and move from one service to another. Uh, for example. Right. So there's no, there's a sense in which the Internet of today, there is no sense of kind of, kind of user ownership.

Speaker B: Until GDPR came along.

Speaker A: Yeah, well, the gdpr, that complicates things. So. But, um. So the idea that a blockchain. So you think about Bitcoin. What was interesting about Bitcoin for the first time, right. Is people had digital money that wasn't just sort of a. A record in PayPal's database under their terms of service, you truly, as long as you had that private key, you truly own that Bitcoin. And what people have done over the last 15 years is they generalize that idea. And so you can. An NFT is the idea that you can own a digital barrel, piece of digital media. Yes.

Speaker B: Uh, unique digital certificates, etc.

Speaker A: That's right. So the kind of the. I guess the important point is basically what you're doing is you're introducing property rights to the Internet.

Speaker B: Right.

Speaker A: And those property rights can just as in the real world, you can own a house, you can own a piece of art, you can own a piece of money. Similarly, in a digital world, they can be all sorts of things. From a policy point of view, what we argue is that we should think of it again as the analogy to the real world. It depends on how it functions. So it's not like so for example, we have been arguing that a one size fits all policy of everything that's a token is a security, everything is a commodity. Makes zero sense, makes no sense. It depends how it's used. So for example, if I create a token and that token gives you a right to the cash flow of my company, that's probably a security because that's what security are. Uh, if I create a token and it's like, let's say Ethereum M where it's like this thing that you use, it's kind of fuel to run applications on that network that behaves more like a commodity. And by the way that's what the policymakers of the SEC and those folks have said is that Ethereum is therefore a commodity. Um, there are other things like something you might buy in a video game or some other object which might just be sort of a good regular goods like you buy an orange at the store. And so our argument is it depends on how it's used, the context. And you should basically take um, we're not, contrary to some of what our critics say, we're asking for special rules. We're not, we're asking for the same rules you have in the physical world. M take those rules of how you classify different types of things in the non digital world and apply those to the digital world. And those tests in the offline world, they're functional tests, they're about how they're used, how they're designed, they're case by case, they're criteria based. They're not sort of like all tokens are security.

Speaker B: So I generally agree with all that. I think one of the things that I've advocated for some time, you know, digital tokens are a new, these types of, on you know, on the Internet digital uh, tokens can kind of have multiple functions, right?

Speaker A: And so, so each a single one

Speaker B: can kind of a single one can morph at any given moment in terms of what it does. And um, you know, if I'm for example like I play a game and I get a token that I get rewards from for activities in the game that conveys sort of more community power for me in the game in different ways or it becomes swappable for uh, other artifacts in the game. It also maybe is liquid again something like usdc, so I could actually take it and convert it into dollars. Uh, but it also conveys voting activity. Uh, and if I'm like a teenager playing a game or even a 23 year old or whatever you are and you're interacting with this part of the beauty, part of the magic is that you can in fact do all those things. It can have all those manifestations. There may be reasons why you want to have rules around how it's traded in a market. So the concept of uh, a rules based system is there, but if you attempt to say it's a security under 1933 securities law, well then you can't use it for these other things because the market structure and the regulatory structure that exists just won't work. Are you going to have transfer agents and uh, qualified custodians embedded in games all over the place? And so it feels like we need more malleability here in policy. And it feels like um, m. This is a moment in time where policymakers um, need to accept more degrees of freedom and more latitude and stick to foundational principles on some of this, but not try and superimpose the infrastructure side of the implications of what something is. And I feel like other jurisdictions are doing that better. They're sort of saying, hey, there's digital assets. You know, here's how you want to, you want to issue one and promote it and market it. If an exchange wants to list it, here are the rules. But like its general utility is not prescribed in terms of the market infrastructure that it has to run on per se. There's like more latitude in terms of its actual utility. And I, and so I worry about that because I really think that we want to encourage entrepreneurial and developer creativity for how to apply these things. And even some of the bills that are being talked about, I worry that they actually put too much structure, uh, on some of these things.

Speaker A: Yeah, I think that's a great point. And I think part of your point, right, is that we want to leave freedom, like openness there for. Because developers are very creative. And so if you overly prescribe the outcomes. But like I think so like fit 21, which is sort of the prominent market structure bill that the House passed, that's now, you know, some form of which may at some point get taken up by the Senate. Um, which I think is, you know, there's always issues with bills, but I think it's generally a smart bill. The way I think it approaches it is on a risk based approach, meaning. So like if you create a token and you know it's a, it's a sort of a network token, something like Ethereum or Bitcoin. Uh, and if a, if a centralized organization originally creates it, as most things in the world are created originally, they're centralized, there are for Example lockups placed on those investors and those founders for some period of time until there's no longer an information asymmetry so that they can't go out and promote the token and dump it. And I think those restrictions are very, we're very supportive of those restrictions. Those restrictions are gray area today and this would make it. And in many ways I think this to me undermines one of the critiques of people like us. Uh, they say that the crypto industry is lobbying to loosen regulations. It's actually, if they actually read the bill, it's the opposite in many cases it's actually more restrictive.

Speaker B: In many cases significantly more.

Speaker A: Yeah, it's just more restrictive, but it's restrictive in the smart way. So the bad behavior is project founders going and pump and dump.

Speaker B: Ah.

Speaker A: And things like this. And it's putting very, I think much stronger restrictions on those types of things.

Speaker B: Right.

Speaker A: What it's allowing for is, you know, once, for example, once it's hit this threshold of decentralization, it's a commodity. You can do whatever, you know, the, those things you, you would want to do in your game. And you have a lot of sort of degrees of free freedom to design things. There's still rules in place that like the CFTC rules for commodities and market manipulation and things like that, fraud rules, advertising rules. But there's a lot of freedom to sort of design things. So I think that's like the right. To me, the right kind of uh, policy approach is to look at what the actual risks are, design policy to mitigate those risks and then on the rest of the things that aren't sort of risks, allow for what you're describing, the creativity of entrepreneurs and developers and the sort of the humility to know that none of us really know where this will go.

Speaker B: Right, right. And I think about when platforms and Web2 platforms emerge like Facebook and Twitter and the like, the ways in which just businesses thought about how to apply and use this stuff was incredible. There was this incredible. And then those platforms started building a lot of products and features that were really useful. People who are communicating in different ways or gathering communities in different ways and, and the like. And you know, if I think about, you know, on chain, um, if I'm a, if I'm a consumer facing company, like I want to make sure there's clarity so that as a consumer facing company I might want to have many different digital tokens that are part of my toolbox in terms of incentives, rewards, engagement, economics and stakeholder participation. Like all these things and it's got to be clear enough that these are not the equivalent of filing, uh, uh, Form 4s or whatever to the SEC.

Speaker A: Uh, totally agree. And by the way, this sort of same uh, discussion is playing out in other areas. So, for example, AI. A bad approach to AI regulation, in my opinion, is what you see in some of these bills, including the EU Act. AI act, which is all models above a certain computational threshold number of 10 to 20, 25th flops have to be registered. Yeah. Have to go through some big process. Right. That's just a sort of a silly thing. In fact, funny enough, a lot of those thresholds, they said, have already been surpassed by open source models. And the world hasn't ended and it's been sort of. The doomers have overhyped it. A smart way to regulate AI is to say, hey, if you build an AI system that helps you create a bomb, you go to jail. Like that's a smart regulation. Right. So the point is a smart way to, like, a bad way to do it is to make these arbitrary technologies kind of limitations that reign in the creativity of entrepreneurs, uh, and developers. A smart way to do it is to say, what are the actual risks and how do we disincentivize that behavior as opposed to kind of fearing and banning and slowing down the technology overall?

Speaker B: Which is.

Speaker A: I just think we're living in a time right now, for whatever reason, where there's a lot of negativity towards technology. And you see this, all these emerging areas like crypto and AI, where there's kind of these.

Speaker B: A lot of fear.

Speaker A: Yeah. And this is really kind of blunt, uh, instruments being applied to what you're describing, as you're describing. It should be much more of a nuanced approach.

Speaker B: Yeah. So let's actually, I want to kind of talk about politics and policy for a moment. And you know, uh, this episode is being released before the presidential election, uh, and many and many other elections of people in Congress and the Senate. And there's a lot of active dialogue going on about what should crypto policy be, how should the country think about it? Policy platforms are being developed by both of the campaigns. This is all kind of taking shape literally as we speak. And, um, I think you've heard me talk about this. Um, you know, circle is purple, as I like to say. And we really are. And our view is that like, you know, I've been building this company through three different administrations, Republican, Democrat, a lot of different stuff, and sort of it's been the same message for 11 years. And so here we are, it seems like we're on the cusp of significant policy work that's going to happen here, here. Whether it happens pre election or post election, it's going to happen. Um, and rather than sort of talk about, uh, one party or another, what their platform is, it's just, if you agree with me that crypto is purple because it is a generalized technology, there are people who argue that actually it's fundamentally a libertarian, Libertarian, uh, technology and therefore you ought to vote along a libertarian pathway. I believe it's actually like strategic, important technology infrastructure that makes America competitive, makes for, you know, accomplishes all the things that you believe can be accomplished with this technology. So if you, if you take that view, um, what is the M message to all of those politicians who are trying to figure out what they should think, and they're trying to figure out what stake they should put in the ground when people ask them, what's your position on crypto? Like, you know, step aside from the bills and the nuance which we were just in, but just get to the basics of like, what, what should someone think for America, specifically for the United States, what should they be thinking about, um, as, as they, as they engage with their constituents over these coming a couple months?

Speaker A: Well, I think that, look, I think that policymakers, I think kind of the, if you, if you chart out the history of this topic, people kind of ignored it for the most part. You know, for the, say the 2010s, the policymakers did, there was some activity, but it wasn't, I mean, sort of a prominent issue. Um, and then, you know, then there was sort of this 2022 period with SBF and things like this. And then the crash. Yeah. And then we had a very aggressive kind of executive branch, agency led approach to this. Um, and I think a lot of people who were kind of leading that effort thought that they would just sort of kick it and it would go away.

Speaker B: Right, right, right.

Speaker A: And the reality is it hasn't gone away. It's not going to go away. And you now have hundreds if not thousands of very strong entrepreneurs in the United States pursuing building this technology. 52 million Americans, according to the latest surveys, own crypto. Um, and frankly, the policy approach is a mess. Right. So the SEC has approached this through what people call regulation by enforcement. They've refused to give out any guidance, which is the normal way that agencies are supposed to regulate new industries. They've done it through enforcement, which means legal actions. We now have contradictory court rulings. So you literally don't know what we literally do not know.

Speaker B: This is what Congress is made for.

Speaker A: Yeah, we literally do not know. Like, if we tell, like the best evidence we have to tell entrepreneurs what to do are court rulings. And many of those now contradict each other. And they're district level courts of equal standing. There has over the many years that will get appealed and worked out maybe at the Supreme Court level, but for now we don't actually, we literally don't have rules. So I've been going, look, I think as you have, I've been going to D.C. for a couple of years now. I go at least every month, going 11 years. Um, and I just hear again and again. And this, by the way, is very bipartisan and it's very much on the Democratic side as well. That like, this is a mess, we need to fix it. Like that is. That is the growing consensus. Right. And so then. And so just empirically, that is a bipartisan. I mean, half, if not more of the meetings I've had are with Democrats. Like there are obviously some Democrats who hate crypto and will always do that, but I think that's the minority of the party.

Speaker B: Eventually they'll come around.

Speaker A: Yeah, but most of the party in Congress and the House and the Senate realize that they need to address this and want to approach it in a reasonable way. That of course people debate the specifics, but the basic idea is how do you put guardrails around it and allow for innovation? So I think there's a growing consensus on that issue. I would also say to the crypto industry, there's some people in the industry that think, oh, this should be a partisan issue. I just think, look, uh, putting aside their politics, I disagree with them just

Speaker B: on a purely like saying that should be partisan.

Speaker A: Well, yeah, and it's also just tactical. Like you need. The only way to really get a solution here is legislation. Like, uh, otherwise it's every couple of years you have a new president, things switch around. Like entrepreneurs can't build in that environment. We need to get together and through a democratic process, decide on what are the rules of this game. And the best way to do that and to entrench that and to make sure that it lasts, and they make sure that entrepreneurs have predictable ground on which they're building, solid ground on which they're building is to pass legislation. And I think we're close to doing that on stablecoins, on market structure, on a bunch of other topics, there's going to be more, and that needs to be bipartisan. It just has to be bipartisan. And so that's the only way in my mind to approach this. And there's a lot of support on both sides. And I think it will be, I think it will be a, I think in the end this will be a super majority, bipartisan, agreed on issue. And people will look back on this period as like, I can't believe that they thought they could just ignore this for so long or use this ridiculous process they're doing now, um, which is just not working. I think today all that that approach has done in my mind, has hurt the good entrepreneurs. And if anything, scams and bad actors are greater than ever. It's doing exactly the opposite of what a smart policy should do. So it's just simply not working. And more and more people are realizing that. And I think we're going to see a change.

Speaker B: 100% agree, and I'm optimistic about that. And my hope obviously is that the creativity that people have in what they're building on chain and they're building on this infrastructure is reasonably unencumbered because there's so much that's in front of us. Which actually leads to my last key question. I'll draw on, um, one of the comments that you made earlier. And we both had the glean in the eye around. I think we're really close to where the user experience, in a sense all these things can come together. The infrastructure, the user experience, what developers can do, all this, the iPhone moment, uh, idea. And it feels like all of this could line up really nicely where we have legal clarity, at least significant legal clarity, and we have this kind of technology readiness and then the creativity happens and blossoms in that way. But, um, with that in mind, what are the things that you see today that in your gut sort of say, I think we're really close. Why are we really close? What are the gaps to close? Still, forget about policy for a minute. Just purely at a technology and a capabilities level, what are the gaps to close? Uh, and what do you think that looks like?

Speaker A: Yeah. And so to your point, I think the technology has gotten. The technology gaps have almost all gotten closed. And it's happened very recently. And so the fact that you can build on a layer 2 on Ethereum, so something like base or optimism, you can build on Solana, you can build, um, relatively easily with low transaction. The prices have gotten low enough now that the applications can subsidize them, which I think is a critical point, which means you can basically raise venture capital

Speaker B: when bandwidth got cheap enough that you could push meaningful content and apps out, you're sort of the equivalent.

Speaker A: And so we're now there. And it's really only been this calendar year that that's been the case because you had a lot of big upgrades to these systems. There's still lots of little things. Like, everyone always complains about the number of steps you have to go through to onboard and go through the crypto

Speaker B: should be more invisible.

Speaker A: Yeah. And some of this is like, regulatory. You've got a KYC and you've got to do other things, but some of it is just, I think, just kind of working out the kinks. But I think we're getting very close. I think the big thing is the policy side. This is why I spent so much time on it. Uh, to me, that's the big missing thing. I think the technology, actually, unlike three

Speaker B: years ago, on the policy side, the capital and the entrepreneurship will just kind of really.

Speaker A: I mean, look, there's all little things here and there, but I think the core technology is. Or, you know, another way to say it is. If you kind of think of blockchains as, as mapping historically onto the past computing trends, where there's kind of a Moore's law, there's kind of a price performance curve. I think we're at the point of the price performance curve where we're good enough. And this is probably the first time this year, uh, where we are, whereas three years ago we weren't. Because three years ago it cost $5 sometimes to do a transaction. And that meant you couldn't do things like social networks and games. Now you have real social networks, games. Anything you can do, it's an Internet service today you can do as a, uh, crypto blockchain.

Speaker B: We need chance fraction to be more

Speaker A: of a. Yeah, there's things like this and user experience. Yeah, there's still, like, you see too much of the underlying stuff, as you said, like, which chain you're on shouldn't even be a thing that consumers know. So there's definitely improvements to make and I'm sure you're working on a bunch of them and you know, Coinbase is. And a bunch of other great companies. Um, but, uh, I think the big, um. Like I just say this as someone who speaks to entrepreneurs all the time. Like a lot of entrepreneurs who are really good at building applications don't want to enter the space right now with the policy uncertainty. They don't want to. No one wants to say, I'm going to start a company and then maybe I'll get. Because it's basically a random number generator as to whether you get sued because there seems to be no principled action. Um, am I going to just randomly spend the next five years getting sued by random government agencies, um, because they have some political cracks to grind? So no one wants to do that. And so we've seen, as a result, a lot of the best entrepreneurs are going into AI in other areas. So policy is not just. Just about policy. It's about creating, um, uh, a, ah, conducive environment for entrepreneurs to work in. Rules of the road. Yes, Rules of the road, where you incentivize the best people to enter and you disincentivize the bad actors. And right now we have a system that incentivizes the bad actors and disincentivize the good actors. And so that's why policy is so important. I mean, obviously it's important in and of itself, but it's important for the secondary thing of who it incentivizes.

Speaker B: Yeah, I definitely see that. I think, um. Well, I want to make a date with you. I think we started talking about the possibilities of this over 10 years ago. I think I remember sitting down with you over a meal and talking about visions of some of this stuff. So in 10 years, let's get together and we'll make another episode. All right, sounds, um, good. And I suspect that we'll be incredibly pleased with the progress and probably, like, blown away. So we'll commit to rewatch this then.

Speaker A: That'd be awesome.

Speaker B: And see what that looks like. So, uh, uh, 2034. Stay well. Great to have you and wonderful conversation, Chris.

Speaker A: All right, thanks, Jeremy.