Importance Of Blockchain In Cryptocurrency

Market Disruptors podcast. I am joined today by Kate Mitzlmacher, and she is the founder and CEO of block Accelerate, which is a fund that's in the blockchain space and and really getting into a lot of these projects we're going to talk about, but let's just get into it. So, Kate, welcome to the show. Thank you so much for having me.

All right, thanks for coming so um just for those that don't know more than that, just little intro, tell us who you are and kind of your background and how you got to where you are and what you're doing right now. Sure. So, I am the CEO founder of a fund specifically dedicated to deploying capital into this emerging space called Blockchain um Are fund. Of sort of hypothesis driven in our thesis is that blockchain is going to generate trillions of dollars worth of wealth over the

next five to ten years. We see it as the next inflection points similar to the Internet, similar to microchips, similar to Industrial Revolution, when enormous amount of wealth came out of the innovation and those who managed to create companies around it capitalize on that innovation within the same sort of wave is going to happen with blockchain. And we see this fund as a dedicated vehicle not just to invest in companies, but help them scale, build the

infrastructure to help them succeed. Um. And that's sort of what we were focused on today. Great, all right, UM, there's definitely a need for that, right any you're kind of at the front helping these companies get up off the ground, really helping push the industry forward. I like that. Um, do you want to tell us, like, uh, I mean, were you involved in tech or finance or economics before

you got to this position? Yeah? Sure so. I guess the way that I got involved with blockchain is I was fortunate to be in the right place at their time, like a lot of people, and um, and I was

involved with technology since two thousand and eight. I was working for a global research firm called Gartner, where we got a chance to track trends or cloud computing to big data, to cybersecurity, and blockchain came about in about sixteen, and that's when we formed a division to track more than a hundred different proof of concepts, and that's when I sort of started seeing this wave of interest coming

from enterprises. It was enormous amount of inquiries to Gardner from c i os of fortunate companies who wanted to learn about this technology. And I sort of saw this parag so not enough startups coming to us and trying

to pitch to those enterprises. So to me, it seems sort of been a symmetric um market dynamic that I thought was interesting and in two seen when I left, I thought it's a perfect time to come in and start building out the infrastructure because it's going to take a few years to close the gap between where the expectations were with blockchain when everybody got excited about it, about all the different use cases, but the technology wasn't

quite ready yet, so the timing was good. But just a quick story about myself, I think that might be interesting for listeners to hear, is that while my fund is focused on making returns UM and UH financial returns to all peace. Personally, I'm driven by this mission to make blockchain ubiquitous. And the reason for that is because of where I come from. UM. I was born and raised in the Soviet Union, UM, and the environment that

I was raised in was extremely centralized. There was nothing anything but open financial infrastructure that we're trying to imagine. And today said, to give you an example. In my mother, UM was out of job. She was an aerospace engineer and militarization happened. She had to go start a business.

So she went to a bank and we only had one bank in my hometown of seventy thousand people, and she had to borrow money and a hundred percent interest rate, and that's literally the only option she had to gain access to capital. So she borrowed money. Between n two we had a three thousand percent inflation because Russian rouble was collapsing, the country was unstable, and obviously she had to go bankrupt. She did it multiple times, and finally

she had built a business, started generating cash flow. We started building a house on a beautiful bank over river, and that was the year of financial crisis, and that's when rubal devalued thirty x within twelve months and then sixty x within forty eight months. So it was sort of this living through this continuous wave of fluctuation where you don't know what you're going to do next day, like let alone next year, gave me a thing appreciation

for hedge against your local currency. It was rubal um. And in many other cases in countries such as Venezuela or Brazil, or many countries in Africa like Zimbabwe, where you know, the inflation was in trillions of percentage points. I think that's sort of a an interesting use case that we here in the United States still necessarily see as a little hanging growth. Yeah, definitely. And you know a lot of people the United States do kind of get that tunnel vision where they look at the US

doesn't see that they don't have that problem. But this is global. This is a global thing. Um. Now in is that when the Soviet Union fell, was that the USSR fel still in and then between we try to sort of bring this democratic capitalistic system in place and failed. I thought, I remember somewhere like in the mid nineties watching the TV like as like it was coming down. Maybe, but I don't know, maybe not. I think August of nineteen one, I still remember watching TV and taking strolling

into Kremlin. Yeah so then so then through that period, I mean, we had you had seen the currencies crashing through inflation. I'm guessing at that point the governments for printing more money. It was devaluing the currency. Your money was losing value, um, and you're paying exorbit rates to borrow and your money was invo at the same time, right, Well, essentially the central banks collapsed on its payments all together. I recently heard a story actually just last week. I'm

curious to get your take. So it was a there's a book written about y MR Germany crashing after World War Two, and it was kind of like a autobiography of people that lived through that and they said that, um, as it was happening, they didn't really feel like their money was losing value. They thought everything else was just getting more expensive. Do you think that's how it was or did you not look at it that way? That's a good way to look at it. But a lot

of expenses we had were actually in US dollars. That was at the time a professional form dancer. That's a funny story about it, and all of my lessons were in the US dollars. Um So for us, I remember getting going to a kiosk in exchanging money and at one point it was six to one and the next day was sixty to one. So in a way, everything is becoming more expensive. If um, so you did see things getting more expensive at that time, you didn't really look at it as your money was losing value. I

think those are the same things. Well. I think like a lot of times, even in the United States, right, like, people see prices getting more expensive, but they don't realize that their money is actually losing value. And I think that's a big different, different way to look at It's the same thing. It's the same thing, like you said, um, but someone who's seen the extreme side of it, you

obviously have a different opinion. So well, having lived in Russia and now having lived in the United States for the last thirteen years, I don't think US dollars losing value at any rate close to what we've seen in any other countries. Yeah, And I think in that way we have been pretty lucky here was somewhat of a stable currency that we can somewhat rely on, even though we have ninety trillion plus debt as a country and certainly have a lot of problems, but we're lucky in

that way. Yeah. Sure. So then, um, were you first drawn to bitcoin as like a new money that gave you this hedge like you said you were looking for this hedge or did you more see like the technology and kind of dove in that way? So first I saw a bitcoin, and that's when I made my investment, um, thinking it's probably going to go to zero, but nonetheless it was it was a sort of a bath or

a hedge. Um. And then in parallel to that, I was doing my masters at Harvard in international relations and foreign policy, and that's when I started getting exposure to some of the social impact of blockchain, specifically as was studying the case study at Hondora's um and the issue they had with land titles, when essentially you own your land, but you have no way to prove it other than a piece of paper that government had issued and then

kept the centralized database the record off and then some his brother in law would go to the government, change the record, and your property has gone forever. So to me that sort of opened my eyes to the blockchain and the impact that I can have. And then, obviously of being a gartner, started looking at enterprise use cases and sort of the conclusion that I came to UM is that the last ten years of blockchain were very different from what we're going to see in the next

ten years of blockchain. UM. The last ten years of blockchain, we're all about cryptic currencies, digital goal, digital cash, other forms of coins, privacy coins. And not to say that this category is going away, it's actually going up exponentially as well. But what we're going to see over the next ten years is going to be more and more adoption of the actual blockchain technology by enterprises and governments around the world, and revenue generating companies coming to fruition.

And that's sort of the angle that our fund is looking to capitalize on. We already have a few investments UM identified that we're deploying capital into that are making revenues, selling to fortune part hunter companies, creating real business outcomes,

and that's what's interesting. So blockchain technology can be used for many different things, one being a new monetary system or as a money or payment system, but then there's other use cases UM, and that's kind of where you're focusing, so other types of applications where the technology could work, and I can walk you through our thesis more granularly. Yeah, I'd love it. I'd be great. Why don't we hear that? Sure? So, um think about it as a stack, if you will.

That's how we view it. And at the bottom of the stack we have the protocols. And you probably are familiar with a theory called the fat particle theory, which we agree to a certain extent, so the fat protocol theory for those who don't know sense release states unlike the aren N when t c P i P was invented, uh, Tim burners Ley did not monetize it. The protocol layers, the company's the facebooks, the Googles of the world came on talk to c P i P. They a crude

majority of the value. They say blockchain is going to be reversed. So the protocols, the likes of Ethereum, eos Um, Cardonna, you know, they hash grown. They're the ones monetizing and everything else sort of a sin a layer of the stack. Our hypothesis is that it's only going to be true for the next few years until protocols become commoditized. At some point in time, the technology will become good enough.

There might be four or five six protocols dominating the market, maybe silver, gold, Platinum, then a flavor for financial services, the flavor for supply chain and everything else will sort of become consolidated and the technology will be good enough, and that's when the value will move up the step

to the application layer. So what this means for us is that at the moment we are investing in protocols, but we think majority of our investments, because our fun term is five to ten years, the majority of our investments will fall into the middleware layer and into the application layer. And I can talk a little bit more detail, and so um for everyone that's listening that doesn't quite follow along. So um, in the Internet, we have protocols

that are standardized things that everybody builds too. And she mentioned t c P I P, which is kind of how the information is found and transmitted. But there's also other protocols. So we have a protocol for email, right SMTP. We have a protocol for security. So there's different types of protocols for different types of things. And um, I guess just talking on this protocol layer. Right now, you're saying that we're seeing just a ton of protocols. Seen

was the protocol war or whatever. But you think it's going to settle down to just a couple of protocols, Well, UM, don't quote me on numbers. It's UM, it's really hard to tell how many protocols will will dominate. But the bottom line, there will be a finite number of protocols. We're not gonna need a hundred plus protocols. UM. There will be interoperability among those protocols. They will become scalable at the moment they're not UM, GDP are compliant, UM

and so forth. And when that happens, that's sort of when the protocol later will become commodities. I think the ultimate value is about building real products and services for consumers and for enterprises. Regardless what blockchain protocol it's on, it should be invisible, it should be working, UM, it should be good enough. UM. Nobody needs to know that it's built on ethereum on it's building hyper LEGA just needs to how the properties of immutability, transparency, auditability, ability.

I'm curious on that. So you just said immutability, So for me. I'm like, if you don't need censorship resistance and immutability, what you need a blockchain for? Just go have a database. I'm curious, especially with your background UM from Russia and then even referencing like Honduras, it seems like the censorship resistance portion is a big piece of that. And it seems to me that that starts at the

protocol layer. So applications could be built that are less immutable, right, so they have you know, claud acts or whatever, but it has to start at the base layer. Do you agree with that or not? Really? Well, I think there's two different questions there. The first one I used to agree with you, then I changed my mind a little

bit on that. Okay, So I think there's a set of use cases that would not survive without a blockchain, meaning there's no other way for you to do completely fair are resistant, government resistant, land title system on a private blockchain. It has to be done on a public chain because true public chain is truly immutable. That's sort of the core value proposition of it. Voting, for example, that could be another example of where mutability truly matters.

But there's a lot of use cases where UM immutability is important, but it's not a deal breaker like a video game, right, yeah, for a video game, or let's even just say, um, you know, provenance of of seeds in a supply chain is as long as you can sort of track back the time stamped order of when and where they came from, and you have regulators in the network who confirmed that this was indeed, you know,

stamped at the right time. You know, if you go back and change it and you can see that somebody change that, it's sort of not not the end of the world. So I think eventually I see it as three three reasons to do things on the blockchain. Number

one is a mutability. Number two is whenever you're working with multiple parties who don't know and don't trust each other, and they need to sort of have a single version of truth that is somewhat immutable and without having a centralized intermediary controlling that version of truth, that's when blockchain makes a lot of sense. And number three is programmability,

meaning when this happens, then this is the outcome. If you if your flight is delayed, you should get your flight insurance, or if your flight is canceled, you should get your money back. So whenever there's if this and that, then smart contract could ability makes a lot of sense. And that's sort of immutability or no immutability, it's still

a really good use case for latching. Yeah. Great, Okay, So if we're moving up the stack, you had talked about like the industrial revolution, and I've studied all these industrial revolutions, or actually say technological revolutions. There's been five in the last two or fifty years. It looks like even though they're different technologies, they all kind of evolved

the same way, it seems to me. And uh, you talked about, you know, going from protocols to applications, but really if you look at the Internet as the as the last revolution, well anyway, I don't think that's part of the revolution, but anyway, Uh, you kind of have protocols, which would be the t C P I P s, but then it didn't go straight to applications, right, so

then we have like platforms in between. So like for example, Instagram or Instagram's a app, but it's on iOS and iOS runs on tc pH And I think you reference that with like your middleware, right, is that kind of what you're talking about? So what I'm talking about when I think about middleware, in my view of the stack is three things. One is protocol enabling layer, application enabling layer,

and then identity enabling layer. So there's sort of platfora of companies that are solving problems on the protocol, the issues around operability or interoperability, security, privacy, those are sort of platform enabling layers UM application enabling layer in a way, is what you're talking about is how can you get access to the platfor of applications out there, while in univerrows er UM, you know you need some form of an operating system, you need UM the wallet even to

or some form of identity which leads into the upper layer, which is the identity and if so, I sort of see those three as the middleware UM. And then it's interesting because one comp anywhere investing in right now, they

are a fork or ethereum. So they created a fork m ethereum, but they are essentially configured that fork to appeal to what enterprises would want to see, such as high throughput permission GDP, are compliance security, and they sort of enabling those enterprises to build applications on top of those bottom protocols even though it's a fork. So I sort of see that even as a middlewhere because it's also not industry specific, it's across um in industry agnostic,

across multiple companies, multiple industries. Do you think that's kind of like what we saw though in the Internet days, where um, you know, in the early nineties, all these companies said, oh, we can't be on this public Internet, We're gonna build an intranetum. But eventually everybody came around and everybody's on the open Internet. Do you think we're

seeing the same thing with that. I do, even though we are invest seeing those types of companies, I don't think it's a deal breaker because they can always ce

mibrate to the public chain. And I sort of see the matter of time, at some point in time, the public chain will become good enough to handle throw quote it to become permissioned when it's necessary or um uh private privacy of data and when there's different there's different investing thesis and time frames too, so like this might be a really good investment for the next five years,

but then eventually it changes or something that's right. So it's an evolution, and I think we're in very early days. It's sort of we just invented electricity and we're trying to Teleration said, that's totally what's happening. So that's a that's a great that's a great point, and I wanted to ask you about that. Right. So, um, they say that being early is the same as being wrong. Right, You're not going to create a television when you just

create electricity. We saw in the internet days again, you know the famous pets dot com explosion. That was a great idea and people buy all their pet stuff online, but there was nobody buying an thing online at the time. So I believe there's like the sequencing, right, And do you agree with that? And if so, like do you think, like Depps, is not the time for depths, like right now we're still kind of in the protocol, maybe into the protocol, maybe into that middlewhere layer right now and

then depths come later or how do you look at that? No, I don't think so. I think there will not be any successful protocols and there's not going to be any successful depths. So one is sort of driving another. I think we just got a notification that run out of time. We got it. Um, but I think that applications is what's ultimately going to drive this industry to be successful. And I think if we try to time it too carefully, we're going to miss out. Nobody knows whether we're in

the or whether in two thousand four isn't. Many people are trying to guess. They're probably mostly wrong. So the best it to look at it is one by one basis is looking at companies the problems they're trying to solve. Are they solving problems with blockchain where the blockchain is actually needed? Um, and are they getting traction? You know they're getting traction, they're probably getting revenue. So that's sort

of that's a better way to look at it. And try to say, oh, we're only investing in protocols and we're only investing in middle where we're only investing in you know, site chains. That's nonsense. So you've identified the different layers, but you're investing into the best projects that you find in each one right now, Yes, because we don't know where the timing is. Yeah, I agree. Just because it happened you know that way, it may not directly apply this time. So that's that I would say

in the application layer. There are some projects that I think more of long term bets than short term vets, and I'm not investing in them at the moment because I don't think it's gonna happen in the next five or so. To give you an example, Um replacing marketplaces is like replacing Uber alltogether. In theory, you can run a smart contract connect buyers and sellers, drivers and writers and just put them on an app that's not following by Uber and everybody gets a piece of the pie.

So it sounds like a utopian vision, but technology is not there yet. Unit scalability in order to do that. Trust is not there yet. There's no identity laier that self sovereign and trusted so that you get in the car with an Uber driver you can trust that he didn't murder or more a thousand people before, and at the moment you trust the central party such as uber. Um. In the blockchain world, you would trust the system, but it hasn't been developed. The identity system has not been

developed yet. So those sort of projects I think more long term focused, and we wouldn't necessarily invest right now. That that's a that's a good breakdown. I appreciate that so um, then is your fun then really geared more like as a venture fund? So you talked earlier about kind of having that long time horizon, So are you do you consider yourself more of a venture fund you're investing into early stage or do you actually have your

fund broken up into like different sectors. Now it's a it's a long term focus eight year plus two ten year horizon fund. UM. We invest of our assets into tokens and majorities, so into equity of mostly revenue generating companies. Majority of them will be selling to some form of an enterprise or B two B play. Are these companies that are part of it? Is also because we have expertise in that. So it's not to say there's not

opportunities in the consumer. We as a fund have expertise in the enterprise, so that's wherever we want to play. And you say revenue generating, So um, you're looking to invest in the companies who are already generating revenue or you're trying to get them to generate revenue as quickly as possible, both for pally preferably former. Yeah, of course, right, So as a venture fund or long term focus fund, UM, how do you look at risk in this space, and

how do you manage that risk like through diversification. I guess do you stage in your investments like good question. So yes, Obviously every venture fund is in the business of risk risk management essentially UM, and every venture fund diversifies. But I think there's limited diversification where you're just placing the bets because you're fraid to miss out on something that's not diversification. That's just that strategy. UM in terms of our strategy is the way we knew it as

a funnel. So we know that we don't know everything. We know we're probably going to be wrong in a lot of times, so we want to make enough bets UM in the forefront with smaller check sizes, where we sort of use it as cost of information, if you will.

We understand the company a little bit better, we work with them, we get to know the team, and then the majority of our capital specifically seventy percent of our capital is reserved for the follow on and that's when we already have conviction about the company's strategy, about their execution, about their team, and we double down on the winners. So this sort of the funnel approach is how we

view risk management if you will. Okay, Yeah, So for you know, someone who's listening to this that's kind of maybe just looking at putting their own money into the space. I mean, they could follow a similar approach where it's like a venture fund. They're diversifying through I don't know, twenty different positions, but not putting all the money in. You're saying like, as the project is proving itself, you're averaging in milestone based personal based, so as as milestones

are hit, they're building trust. If you continue to like what you're seeing, you continue to invest in. And this was the problem with the space and when projects are raising fifty plus million dollars with no milestones and oftentimes no truck record and sometimes not even the product, let alone product market fifth. So I think we're sort of moving back to more traditional, you know, disciplined venture style financing,

which is which is healthy. But for somebody who is an individual, I would say it takes a lot of time and a lot of effort to source and I mean we have a team of ten and we do it full time. Yeah, and we feel like we are we don't know everything, you know, So yeah, it's definitely it's definitely risky with I mean anybody's money. You're managing other people's money, which is a heavier burden as well. Um, but we're running out of time, so let's let's I

appreciate that talk. But I'm just curious if we future, if we kind of forecast the future a little bit, which is always just kind of a little fun topic. Um. Right now, Bitcoin has just been crushing all coins. Um, you know historically in the short history we have, that's kind of the way it goes and all coins come back. Does that Does that concern you at all? I mean, you're obviously invested in the space, so I'm guessing not.

But what do you think about that relationship? So it doesn't concern me as a fun manager because the majority of our investments are in equity, so we sort of see it as a hedge against the fluctuations of the space.

With that said, with the tent and we do invest into it's I sort of see it's similar to you that bitcoin is the gold standard, is sort of the they move the wave behind this sort of um capital influx into the rest of the coins, and then once it reaches a certain point, and by the way, it would not be surprised if it does go to a hundred thousand, and don't quote me on that, but once it happens, then you sort of have enough investors feeling

like they can diversify, and that's sort of naturally trickles into alt coin. UM. But I think the regulation has become a lot stricter since TV, so that's a good thing because the quality of the old coins is actually going up as well. UM. And I wouldn't be surprised if we're going to see another wave similar to what we saw in the past happening again. Right. I think we will, right, I mean we we we see cycles and human psychology is always the same, and so I

think we'll see a repeat of that. Um. Speaking of regulations, today, I was watching uh, Facebook get grilled by by Congress about regulations and stuff like that. Um. We've seen Donald Trump, the President United States, and and the Fed chair tweeting about bitcoin. UM. A lot of the heat is just hilarious. Like I think it's a it's the first time the bitcoin gets mentioned by the president. Everybody should be happy

about it. Whatever he said, it's sort of irrelevant. It's sort of gotten high enough in the raider for people who start paying attention, and to me that sounds like free advertising. Yeah. I think most of at least Twitter crypto Twitter was very happy about it and thought that was bullish, um to even be mentioned by by two you know, high ranking people. I watched some of that

live testimony today and and they're grilling Facebook Libra. A lot of it has to do with their um, you know, their problems have had in the past with securing privacy and things like that. I know they're not happy about that. I'm just curious. It seems like the government, uh, and not just the US government, but lots of governments are

maybe gonna start coming at Bitcoin, libra and other cryptocurrencies. Um. Do you see that having a big effect in the market or is that, as you said, like marketing and maybe proves the use case more. I think every single country has already tried to crush bitcoin in one shape or form, and the more they try to crush it,

the more successful it becomes. Um. This is separate argument from liberal because liberal is own by centralized entity like Facebook, which ultimately has the selfish motives of collecting people's data and monetizing on the data. Bitcoin doesn't have that. So I think that, yes, the US government can crush Libra, but it cannot crush bitcoin. We know it can't stop it, but it could make it illegal or whatever. And I

guess what I'm starting to see. And we saw it in Donald Trump's tweet where he said the US dollar is the strongest it's ever been. Well, we know that's a lie. And he's saying that too. Short it up because just last week he's saying we need to devalue it even more. Right, Um, So, what I see is like internet technology allowed us to transfer information of share information, um and now information is decentralized, everyone creates it and

shares it. And blockchain technology allows us to everyone to create value and us to share and create value, and that takes away from the dollar. So I see a lot of the hate against Libra and bitcoin is about trying to shore up their own currency and keep people from leaving the US dollar or whatever currency they're in. And it seems like other cryptocurrencies would also help that along. Um So that seems to me like maybe what they're trying to do capital controls. You don't you don't see

that at all. I don't see you as dollar going away anytime soon. What I do see is defend creating their own stable point that's based on some form of cryptocurrency. UM, I think we're I'm not falling into the camp of people who thinks that the government is evil and it needs to go away. I think there's really good reason to have the regulation to an extent and to have

the controls that we have. But UM, I think I see blockchain as an enabler to their goal of having a transparent and UM, I guess currency that is remitted without um, you know, high frequency or high friction on that today? Yeah? Good stuff. All right, Well we're we're pretty much out of time, but that was some good stuff. I really appreciated you sharing your your funds, thesis and kind of how you're looking at the market. UM. Do you guys have any information that people should keep up

on Where could people learn more about that? Sure? Well, first of all, UM, I welcome anybody to reach out to me. I'm with Kate at block Celerate. It's bloc c E L E r A T dot BC. I feel free to share my information as well, and anybody can go on the website UM block clerate WC to check us, and we do a lot of publications were very research drivents, so we always put out reports. We did one on stable coins that's sort of relevant to

our conversation right now. I did a prediction note where I talked about governments adopting stable coins and identity, you know, kinds of trends. Um and then we did one on government adoption and you data three point oh webs three point no era. Great. I'll definitely link to that in the show notes for anybody listening that wants to go check that out. But um, that's it for today again, Kate, thank you so much. It was It was a great conversation. Yeah,

thank you so much. Market Hey, if you like this episode of the Market Disruptors Podcast, please help us take this to the top of the podcast charts. Just please do me a favor and rate review and subscribe. Taking fifteen seconds to just leave a quick review goes a long way and helping us reach more people and disrupt more markets. I really appreciate you listening and I'll see you next time on The Market Distructors Podcast.