Fred Ehrsam, Coinbase co-founder, discusses the rise of cryptocurrencies and the future of blockchain technology with Bloomberg's Emily Chang on "Bloomberg Technology."
Emily: The rise in the value of the cryptomarket has been unprecedented. So, can the industry scale as more investors jump in? How is it gaining legitimacy among big investors and institutions? We asked those very questions to Fred Ehrsam, Coinbase co-founder, who remembers when Bitcoin was just in its early stages. Take a listen.
Fred: People who were working on Bitcoin early always thought it had the potential to be something huge, otherwise, they wouldn't have been so excited about it. They wouldn't have spent their time on it. But, to have said it then would also have sounded crazy. So, you always think it's possible, but you never assume.
Emily: You've said we've gone through several hype cycles. I mean, do you think we're in just another stage of a hype cycle here?
Fred: Yeah. One of the luxuries, I think, of having been in this industry for about seven years now is, you get to see the same kind of hype-boom-and-bust pattern repeat itself over and over and over. I remember when Bitcoin went from $2 to $32, back down to $2, then it went to $256, back down to $70, over $1,000, back down to $200, and now are over $4,000, right. So, I think the reality is that these sort of boom-hype cycles draw more people in, more investors, more talent, more attention, and even if there is a bust, you arrive at a subsequently higher baseline than where you went in. And the cycle just kind of repeats itself into this sort of self-fulfilling prophecy.
Emily: So, do you think the industry can scale as more investors jump in?
Fred: Yeah. So this, I think, is the main bottleneck for the industry. Right now, the blockchain is about 100x off of being able to handle an end user application of about 5 million users, and about 20,000 off running Facebook as just one application of the blockchain. So, we're quite a ways away. That being said, if you remember, at the beginning of the Internet, people thought it was crazy that everyone would be able to interact on it, let alone play a simple video, right, and we do that every day today. The good news is, there are a lot of different approaches for scaling. The bad news is, not too many people are working on it yet. The other piece of good news is that, as we were saying before, with this hype cycle, there's way more talent entering the industry than I've ever seen before, probably by at least a factor of 5 or 10.
Emily: Where are they coming from?
Fred: Really, all over. Some people are taking the jump from Wall Street. The thing that I think is really exciting now is, you're seeing talent from the, kind of the typical mega-tech companies out here start to flow into the industry with really high-quality engineers who know how to scale systems.
Emily: So, how do you see cryptocurrency's gaining legitimacy among investors and institutions?
Fred: Yeah. So, encouraging signs on that front, on our exchange GDAX, we've seen some of the more typical hedge fund players, especially the market makers start to sign up over the last couple of months, which is really great. And you see it talked about, you know, more and more in sort of the typical Wall Street forums, banks starting to experiment with various aspects of the technology. So, I think all that progress is great, and it legitimizes it. At the same time, I also think it's less important than most people may think. The reason is, I think, most interesting behaviors and technologies that come out of new paradigms are usually native to the new paradigm. In other words, if you look at the top 50 websites on the Internet right now, the only one that was a company that existed before the Internet was Microsoft. All the others are brand new. It's new kind of behaviors, like eBay, Wikipedia, Google, Facebook, etc. Right? So, while institutional support is important and will help us get off the ground, I also don't think it's where the most interesting stuff will happen.
Emily: Where will the most interesting stuff happen?
Fred: Organic things from the community, things that were never possible before the blockchain existed, these sort of uniquely enabled behaviors.
Emily: So, give me some examples.
Fred: Yeah, absolutely. So, I think one of the really interesting things about where we are in technology today is, technology companies are the most valuable companies in the world, if you look at the top five by market cap - Google, Apple, Facebook, Amazon, Microsoft, right. But, if you look at just why these companies are so valuable, it's because they've effectively built really big databases around strong networks they have. For example, Facebook has a big social network, and you can't take that network effect and pour it over here if you want. You could say the same about other big networks you might use every day, like LinkedIn, or Uber, or Twitter, or whatever it may be. Blockchains, I think, represent a fundamental paradigm shift there, where now you don't need a middleman, much like you don't need a middleman to move your money, you might think about, in disrupting banks. You don't need a middleman to own your data and potentially extract a rent from it. So...
Emily: So, do you see Bitcoin, then, as a way to disrupt the big tech companies?
Fred: Exactly. I think the big tech companies will be disrupted as much, if not even more, than the big banks. And considering those are the most valuable companies in the world, maybe that's what's really worth paying attention to.
Emily: How so? What does that actually look like?
Fred: So, it means breaking the data monopolies that they have, right. The reason, for example, Facebook is a really, really valuable company, is they have this big database of all of our social interactions and our information, right. What if you didn't need that central third party to mediate our interactions, right? What if a sort of neutral blockchain handled that? Further, you could imagine that, if you didn't like the development direction one Facebook was going on the blockchain, you could fork it, and we've seen, you know, a fork in Bitcoin recently, right. You could fork it to try many different ideas or directions. So, as a result, you might imagine innovation could happen faster, potentially more freedom, certainly, not some other party owning all my data.