Fred Ehrsam

Urson became an analyst at Goldman Sachs. The new mysterious digital currency had been invented by Satoshi Nakamoto, a pseudonym for a person or group that wanted to circumvent the traditional banking system. On a good day, the price was mere sense and almost no one knew what it was. But Ersome saw the potential. He bought in as much as he could and found himself obsessively checking early cryptocurrency exchange mount cox and scouring Reddit threads, where he met

another bitcoin enthusiast, Brian Armstraw. As mount gox was hacked and going bankrupt, Armstrong and Ersa were building coin base, which would become the most mainstream place to buy, sell, and store cryptocurrency in the United States. In the span of a little more than a decade, the crypto market went from zero to more than two trillion dollars, with

some upo highs and gut wrenching lows in between. Joining me on this edition of Bloomberg Studio at one point, oh to talk about that wild ride and where it's going next. Co founder of coin Base and the crypto investment firm Paradigm, Fred Erson, take me to the very beginning of your crypto journey when you were an analyst at Goldman Sachs. What was it that drove you to this emerging technology. Jeez, I think I was lucky because I had three core ingredients to understand crypto. One was

I was a computer scientist and engineer by training. The second is a Goldman I was trading fact specifically the Euro him watching the European crisis unfold every day, watching the I m F give the next tranche of bailouts degree seeing how the Euro would trade on that, thinking hey, maybe this isn't working so well. And the last is I was a hardcore gamer in high school. I was on the best team in the world at a video game.

Lived in these virtual worlds that had virtual currency all the time, so that idea was pretty natural to me. UM and this was right around the time that bitcoin came out on the Internet. Around UH and nights and weekends, I would just spend my time getting further and further into it. Tell us about the moment when you realized that this crypto thing was really something, when the world and your friends probably had no idea what was going

on or thought you were crazy. Well, when we launched coin base inve out of two bedroom apartment in San Francisco, it did seem like a crazy idea. At the time you walk down the street, nobody would know what bitcoin was. Those people who knew about it probably thought it was nuts. Um. The literal advertisement, even on the bitcoin subread at the time, was a bad Microsoft paint uh painting of a wizard that said magical Internet money. UM. So very very not

obvious at the time. The thing though, that really stood out is the community was extremely strong, even though it was small um And if you look at the early coin based numbers, things grew really well, especially when we added the simple feature just to buy and sell bitcoin with any US bank account with one click. UM. So while it seemed crazy to most outsiders at the time, it was clearly growing on the inside, and I think

that's even true in crypto today. On some level you have UM, these kind of radical believers on the inside, and then many people on the outside who might still be touching the elephants, still trying to figure out exactly what's going on here. How did you meet Brian Armstrong, founder of coin base, and what did you too set out to do? UM? Well, like any great crypto venture, it started decentralized in some sense. We met on Reddit. On the Bitcoin subreddit, he posted a prototype of an

early version of coin base and I emailed them. We met up at the now infamous creamery in San Francisco, which is sort of the like back in twelve was the place where everybody would would do meetings. UM started working together fifteen hours a day for four weeks, weekends included. It turned out we both really cared about building something in crypto that allowed the whole thing to go mainstream.

And at the time where you bought in, like had you invested your own money into this magical internet money not knowing what would happen? Yeah, I was fully bought in. Both financially and career wise. UM. I quit my job at Goldman UM and moved out to the West Coast, not even having a place to live. UM obviously started working on coin Base, and then financially I didn't have very much money, but the little money I did have

UM I invested in bitcoin. And it's funny, the most expensive thing I own today is still a car I bought in twelve. I bought it for nineteen thousand dollars UM. At the time bitcoin was about ten dollars so an opportunity cost terms, that's about a fifty million dollar car. I still love the car, but just to give a sense for how expensive real world goods are in bitcoin terms over time. You were at coin base, co founder until UM you were president I believe at the time,

and then you left. Why did you leave UM A couple of reasons. One I felt like the company was just in a very good spot. The second is for much of crypto's history, so from ten when bitcoin sort of came out two thousand nine up until really the only idea that seemed possible in crypto was this idea that it was a new global digital money. UM and the thing that really changed in sen Is. All of

a sudden, the doors opened to much broader applications. Ethereum came on the scene and showed that blockchain based applications were possible to build, and people were both building very early versions of them. Today we know those things better as Defy or these decentralized financial applications that live on the blockchain, and even more broadly, I think over time we'll see mainstream consumer apps and perhaps n f t

s are a weird bleeding edge of exactly that. Um so I found that that whole new frontier to be extremely exciting. Coin bases direct listing it's now a public company was a huge moment for mainstream institutional adoption. But it still seems like so much of the world doesn't get crypto and how big it can be. What do you think they're missing? The short answer is a lot um.

I think. Look, crypto is its own rabbit hole UM, and just like any new powerful technology, it's extremely powerful because it reimagines very important systems that run the world today from the ground up. UM. Most people primarily think about crypto again as a new digital money. UM that's really worked, especially with bitcoin, is a store of value where we've seen bitcoin go from zero to a trillion dollars in market capitalization over the last ten years, but

crypto goes much deeper than that. We think about crypto at Paradigm, which is UH, the investment firm I've started, along with Matt Long in three stages today, and of course that this model will evolve over time. The first is a new digital money, the second is a new financial system, and the third is just a broad UH Internet application platform. UM. So, in our minds, crypto isn't

just kind of this new digital money or new digital gold. Um. It's a whole new financial system that we're seeing being built from the ground up by talented entrepreneurs all around the world. And while it's extremely early on the third frontier, a new application platform, we think that over over the course of decades, a lot of Internet applications that we're

all using will also be crypto based. I've talked to investors who say coin Base could be the next a o l it's the first exchange that's you know, really gone mainstream, but it's too early and others will or something else will surpass it. What do you think, I think it's a fair question. I think history is yet to be written. UM. My view is that it's a very strong place to be to have the largest mainstream

brand trust um, not only with users but also with regulators. UM. And that being that bridge into the crypto world is a great place to start. Now, as you mentioned, you now run a crypto focused investment firm called Paradigm. How is the crypto style of venture capital different from traditional venture capital? Yeah? Um, well I think in a few ways. UM. Just to talk about why we started Paradigm in the first place, myself and Matt Long, who was previously a

partner at Sequoia focused and running their crypto investing efforts. Um, we we realized a couple of things. One, crypto is a whole new field that needs focus. To the core question that Matt and I asked ourselves and starting the firm is is there anybody out there who if we were crypto entrepreneurs building a business and Matt was a former y Combinator startup founder, I obviously started a large crypto company and coin base, who would we want to

have as our first backers? And we couldn't really come up with a good answer to that question. UM. The last is, uh, I think the expertise required both on the team and operationally in crypto is very different. So we're really trying to build a firm UH from an engineering an entrepreneurial point of view to best support these crypto native companies and protocols. The crypto VC lands game is getting now more competitive, So where are you placing your bets? How do you stay ahead of the curve.

The thing we're really excited about is a number of fronts. One is the picks and shovels businesses UM so, now that crypto has grown a lot, there are all sorts of basic infrastructure businesses that are being built out to support at ecosystem. Those of course include exchanges, also custodians, tax providers, k y C, a mL providers, lenders, cryptos back end as a service for any business that would like to integrate crypto, all sorts of these picks and

shovel's businesses. A second big frontier, as we talked about before, is defy all of these crypto native financial building blocks UH that are being built out. Um and today's support around seventy five billion dollars and user assets, up from effectively zero three years ago. UM and This is sort of the bleeding edge of what we see as a whole series of crypto native applications. This is my conversation with the co founder of coin base and the crypto

investment firm Paradigm thread person coming up. President Biden's sec has made it clear that crypto regulation is coming. How does Urson expect that to change the crypto landscape? And with thousands of cryptocurrencies out there, how many is too many? And we have to ask is dos coin a hustle? I'm Emily Chang, this is Bloomberg Studio. At one point, Oh, stay with us. There were something like four thousand cryptocurrencies at the start of the year. I mean, is that

too many? Do you expect more? It's just like the Internet. Um, people are going to try all sorts of things. There will be millions and millions of cryptocurrencies and crypto assets, just like there were millions and millions of websites. Most of them won't work, especially early in the technology. There's a lot of dedicated communities out there and lot of tribalism. Is that a good thing? It's an interesting question. I'm I think every new, powerful technology tends to feel very

polarizing at the beginning. UM, So I think some level of tribalism is inevitable at paradigm. We think that we're super early in this technology, so getting too caught up in any singular view or belief or paradigm no pun intended, UM, is probably unwise. What do you think about does is it a hustle or do you give it more credit than that? I think, UM, well, perhaps framing it from Ellen's point of view, and it's always dangerous to guess

what's going on in the mind of Elon. Of course, if crypto has taught us anything, it's never to dismiss a good meme that could later manifest into UM more concrete progress. UM. I I tend to think there's less of that on the ground today. More holistically, I think whether it's does or more the n f T phenomenon, I do like that there are UM there are a lot of things recently that I think have just brought

crypto to a much more mainstream awareness and audience. One joke we often tell is UM n f T has made it really obvious that most crypto insiders sort of word nerds that tended to care a lot about monetary theory or the intricacies of the financial system. And what n f T s really showed us is that, um, a lot more people, it turns out, care about culture, music, art, basically everybody does, UM, and that that's been a huge boon just for for public awareness of what the technology

can do. Okay, but howsn't the n f T market kind of imploded over the last few weeks. I mean sales in almost every category or drawing up what's happening there, Yeah, is definitely down. And again I think that's natural, just like the cycles in crypto are. I go so far as to say that n f T s produced today probably will have little to no value in three to five years. You could say the same thing about early

internet companies in the late nineties too, though. Um, it's sort of inevitable in a new technology that people are going to try a bunch of stuff. Most of it won't work at the beginning, but the technology itself is really important and really valuable over the long run, and there will be a few things that end up being

fundamental building blocks that really do matter. I want to talk about regulation because the US government has yet to really take a stand on crypto, but President Biden's SEC has made it clear that some sort of stand is coming. What kind of regulation do you expect? So, I think the US is at a very important crossroads with crypto today. The US is blessed with the best currency and the world's reserve currency today. UM. It also tends to be the defect of financial regulator for a whole bunch of

the world. We also have a history of being the strongest technology country in the world. If you look at the most valuable companies in the world today, most of them are American Internet technology companies, the Google's, the Microsoft's, the Facebook's. I do think, UH, that crypto is a nuanced issue, UM, and that it's possible the US gets crypto wrong. I'm I think today you have a lot of regulators whose job it is to mitigate risk and

keep us all safe, and that's that's very appropriate. UM. At the same time, I think crypto is the next Internet sized opportunity for the United States. I think as the potential to create as many if not more jobs

in the Internet, similar with economic growth. UM. I think it has the potential to who square the circle on the privacy Internet issues that we've been talking about with big tech companies for the last ten years, namely, we could use these technologies um to continue to own our own data while still getting all the benefits of the Internet platforms we know and love. Today, China is taking a stand on crypto for better or for worse, and

that's also where most of the mining is happening. Do you have concerns that China is going to beat the US and crypto and that that's kind of a big deal. Yes, and it's on multiple fronts. To your point, one is there are government programs to explicitly build using crypto. This is true both with their dc EP initiative, which is basically making a digital remanby. It's also true of local

governments who are trying to use blockchain technology. UM. And then to your point, historically most crypto mining has been in China. Recently, there was actually a government crackdown in China UM on mining, oftentimes because energy was being siphoned from the Chinese grid in ways that may or may not have been kosher. UM. So I think there's actually a huge moment of opportunity today, UH for miners in the United States or globally to h to step in

and on the crypto side to make it more decentralized. Um. And then if you want to view it from a nation state point of view, to make sure that no single country is in control. You're listening to my conversation with cred or some co founder of coin base and Paradigm. Up next, The big promise of crypto is that it's the next so called iteration of the Internet. But how long until we get there and we bust the biggest cryptocurrency myths? Spoiler alert, It's not all about speculation. I'm

Emily Chang. This is Bloombrook Studio. One point out, stay with us. There are folks out there who think crypto is a gimmick or a Ponzi scheme, or an unsafe hedge against inflation. What do you think are the biggest myths about crisp crypto that you want to bust? Oh jeez, so many good ones. Um. Well, perhaps number one that crypto is all about speculation. Um. I think all investment can be framed on some spectrum from it from speculation

to extremely long term holding. And I think as people get more comfortable with the idea of crypto and why it is a superior money and store of value across all these different dimensions of money, whether it's scarcity, portability, divisibility, UM that people are viewing at as a more long term holding. In addition to the fact that there is real utility for crypto being built today all these financial services and new Internet applications. A second big one, of

course is energy. UM. This is one of the hot topics no pun intended around crypto today. My meta view of the issue is that it takes far more energy and resources UH to protect and use physical assets than it does digital ones. So does that mean you think the energy concerns raised by Bill Gates and even Elon Musk are a red herring. I think they should examine the issue more closely UM, and I think the industry hasn't done the best job of making legible exactly what's

going on here. So my personal view is, UM, it's actually going to be a lot more energy efficient to use these digital systems of value transfer over time time.

But it's understandable that there's a lot of confusion early, especially given the nature of crypto, which is that it's decentralized, so nobody has all the information in some sense, as you said, you know, crypto is the next Internet sized opportunity for the United States, And the big promise of crypto is that it is the next iteration of the Internet that could free users from the power and control of the gatekeepers where whether it's the big banks, whether

it's Google or Facebook. How long until we get there to that future that you see? Well, I think in very small ways, we're already there today in the sense that you can own your own global permissionless money UM, and you can be your own bank in crypto by simply downloading free desktop software that anybody in the world can run. I think it will take decades and decades for all of the applications to be built out around

that base, so a full blown financial system. I think we're probably one tenth of one percent into what that looks like in a crypto native form mainstream applications. I think we're effectively at zero UM. And that's what we're so excited about. A paradigm is watching that whole space get built out UM and unferral. So what does that mean for the Googles and the facebooks? Do they disappear someday?

I think this is kind of like e commerce where you know, the world doesn't change overnight, but you can see the seeds of exponential growth occurring already. Um so I do. I do think we will live in a future where for us to coordinate, we won't need these centralized platforms today. That's already true of uh financial services, in that in crypto you can be your own bank. You don't need a central institution to hold your money anymore.

I think that's true in the web application sense, where already today there are creators who are pushing their work out over crypto rails from their own crypto wallet, where the social graph exists directly on Shane. You don't need Facebook or Twitter or Instagram um to have a follower graph. It just all happens right on the blockchain. I think that's where we're headed. We're headed into a world where both users and creators don't need centralized platforms or institutions anymore.

Take me out ten twenty or fifty years. How has crypto changed the world. What's different? I think one thing people don't yet fully grasp about crypto is how, in a world that is increasingly going digital, your crypto wallet is the entire representation of the digital you. So that means it's your bank account, it's your online identity, it's your universal log in to every Internet application, it's your digital resume, UM sort of your digital LinkedIn, and all

these things are in one place. You can use your real identity, you can use a pseudonym somewhere in between. UM, and I think, perhaps said quite simply, the future, I think will run on crypto rails, and I think it will be sort of the single source of truth and coordination that all systems in the world use today. Well, we'll have to check back in with you in fifty years, but hopefully sooner. UM Renter or some co founder of coin base in Paradigm, thank you so much for joining us.

It's been wonderful to have you, and thanks for answering these very big picture questions and showing us of you of the future. Pleasures always, m H. Bloomberg Studio at One Point O is produced and edited by Kevin Hines. Our executive producer is Alison Weiss. Our managing editor is Danielle Culbertson, with production assistants from Lauren Ellis and Mallory Abelhausen. If you like this show, please share it or write a review. Wherever you get your podcasts, I'm Emily Chang,

your hosts and executive producer. This is Bloomberg