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Full transcript: Blockchain expert and Circle CEO Jeremy Allaire on Too Embarrassed to Ask

What is blockchain? And why do we care?

Circle CEO Jeremy Allaire stands next to a neon sign that reads “bitcoin accepted here.”
Circle CEO Jeremy Allaire
David L. Ryan/The Boston Globe via Getty Images

On this episode of Too Embarrassed to Ask, Recode’s Kara Swisher and The Verge’s Lauren Goode tackle the question of what is blockchain. To help them figure it out, Jeremy Allaire, the CEO of Circle, came by the studio to answer questions from the two of them and from quite a number of listeners and readers. There is no tl;dr on this one — cryptocurrency is not easy to summarize. But it could be, according to Allaire, a way to achieve a secure global monetary system.

You can read some of the highlights from their discussion at the link, or listen to it in the audio player above. Below, we’ve posted a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Too Embarrassed to Ask on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.

Kara Swisher: Hi, I’m Kara Swisher, executive editor of Recode.

Lauren Goode: And I’m Lauren Goode, senior technology editor at The Verge.

KS: And you’re listening to Too Embarrassed to Ask, coming to you from the Vox Media Podcast Network. This is a show where we answer all of your embarrassing questions about consumer tech.

LG: It could be anything, like, “What’s the latest with Uber?” “Should I buy Amazon’s new kitchen tablet, the Echo Show,” which everyone is reviewing this week.

KS: No idea.

LG: “What the heck is blockchain?”

KS: What the heck?

LG: “What tech could Kara Swisher not live without while she was away a couple of weeks ago?”

KS: You know what? I didn’t live without any of it. Why would you assume I would? I wasn’t like on an island in the middle of the Pacific or something like that.

LG: I thought you were away.

KS: I was, but there was plenty of Wi-Fi everywhere I went, so yeah.

LG: Maybe you just felt that way to me because you were gone, Kara. You felt so far away.

KS: I was online. In fact, I was writing a lot last week about the Uber stuff, so it wasn’t much of a vacation. Anyway, send us your questions. We do read them all. Find us on Twitter, or tweet them to us @Recode, or to myself or to Lauren with the hashtag #TooEmbarrassed.

LG: And we also have an email address, it’s, and a friendly reminder, Embarrassed has two Rs and two Ss.

KS: Yeah. All right. I am in SF and Lauren is in New York City.

LG: That’s right!

KS: What are you doing there? What are you in New York City for?

LG: I’m in New York City for the Loeb Awards.

KS: Oh, right!

LG: Not because I am receiving a Loeb award — one can dream — but because Walt Mossberg is the recipient of a Lifetime Achievement award, which he greatly deserves. A few of us from the company were invited to attend along with him, and I’m really excited to be here.

KS: A lot of drinking and a lot of carousing and stuff like that?

LG: Well, I don’t know about that.

KS: Just a venti latte.

LG: It is a bunch of journalists getting together, but I can’t imagine there would be any drinking. Financial journalists.

KS: Giant lattes, maybe a venti grande, a venti something ...

LG: Yeah. I’m all about the green tea, that means that you can stay up just as late and remember everything that everyone told you.

KS: Cool. I’m a Loeb judge. I don’t know if you know that, but I was not involved in this, although I had suggestions. I have talked up Walt quite a bit around every ... he should get every award, as far as I’m concerned. Years ago, I actually won a Loeb award — I don’t know if you know that — and I didn’t think I was gonna win, so I did not ...

LG: I didn’t know, congratulations. Was this for ...

KS: Yahoo coverage.

LG: Oh, okay.

KS: I didn’t know I was gonna win, and so I was mad because I wasn’t winning, and then they said my name. I didn’t have a speech, and I was like, “I didn’t think I was gonna win. Thank you, Yahoo, for being so fucked up.” Yeah, it was nice, that was my speech. I was so mad at the whole dinner, because I thought I deserved to win and didn’t win, and then I won. I’m a bad winner, I’m a sore winner, is what I am.

LG: Maybe you should cover Oath now, and try to reprise your award.

KS: I don’t know, I’m on the Uber thing, the Uber thing, and the sexual harassing venture capitalist speed right now, so that’s what I do.

LG: Yeah. Stick with it.

KS: Try to catch all the Mr. Tickles of tech, as I like to say.

LG: Man ...

KS: I know, right? It’s laughing in the background, this is not a Mr. Tickle. We are gonna talk about something serious, though, right now. We’re talking about finance, correct?

LG: Yes, and at Too Embarrassed to Ask we are delighted to be talking to Jeremy Allaire. He’s joining us from a studio in Boston. Jeremy is the CEO of Circle, which is not to be confused with The Circle, the dystopian Google-like company that was in the Dave Eggers book that everyone in tech read, I’m pretty sure, and has now turned into a movie, which I’ve not yet seen.

KS: Nobody saw.

LG: Circle is a social payments company that lets people send and receive money from their phones. Now previously the company was known for letting users trade the digital currency bitcoin, but it has since moved away from that and has now started its own open source initiative called Spark. Jeremy, welcome to the show, thank you for joining us.

Jeremy Allaire: Thank you, excited for being here.

KS: Jeremy used to be a video maven, he used to run a company called Brightcove, we used at the early versions of AllThingsD, but he doesn’t want to talk about that in any way, is that correct?

I’m happy to talk about online video, but much more interested to talk about blockchain tech.

KS: We’re talking about blockchain, which has evolved quite a bit. You and I talked about it, right? When you started the company, I think we wrote the initial story when you launched.

Yeah, quite a while ago.

KS: We want to talk specifically about blockchain. You did also join us not long ago at our annual Code Conference where you helped lead a breakfast discussion about blockchain, which was then in its early stages. You have a lot of blockchain background.


LG: I have to say, I pitched in for Jason Del Rey, who was originally going to host that breakfast but ended up being sick. So I was there, and I was shocked by how many people showed up to this breakfast, it was really standing room only in the room. People at Code Conference — it’s very tech-heavy crowd at Code Conference, and people were really interested in it. Some of our listeners may know exactly what this is already and have more complex questions about it, but I think we should start from the beginning, for those who don’t know. Jeremy, what is blockchain?

The term blockchain really came out of bitcoin specifically. It refers to essentially the record-keeping mechanism that Bitcoin uses to record transactions. I think the really powerful thing about it is it’s a shared record-keeping system that is open and transparent, anyone can see it, audit it, verify transactions on it. It’s not stored by any single company. When we think of record-keeping systems, whether they’re the polling system for votes or your own corporate budget’s treasury systems, to, say, the ledgers that keep track of what money you have or what money you owe, say, at a bank. Those are all centralized record keeping systems.

Bitcoin was a major breakthrough for a lot of reasons, but this blockchain concept, which was, “Hey, there is this chain of transactions, a history of transactions, and it’s replicated continuously all around the world onto thousands of computers, and it’s a record-keeping system that is not hackable, it’s not forgeable, it’s immutable,” so it has some permanence, yet at the same time it’s not centralized, so it’s not subject to, say, the tampering risk, the fraud risk, or counterparty risk because we’re dealing with money. Often when you’re dealing with blockchain technology, that exists with that.

That’s an invention. How do you have data that is essentially replicable but at the same time, you can prove that you own a specific record in that database? Fundamentally, it’s a record-keeping system. It was created as a way to keep track of transactions that represent bitcoin, but now the concept has evolved a lot, as well. It’s being applied in a lot of different ways, so we can get into that. At a high level, that’s at least, I think, a good way to think about it.

LG: Who created blockchain?

Bitcoin itself ... no one knows who created bitcoin.

KS: They’re always trying to find the person, right?

Always trying to find the person or persons.

KS: I don’t really care.

Satoshi Nakamoto is the pseudonym. Clearly someone with some computer science skill, although not an expert computer scientist, very much a passion around cryptography and a lot of depth in cryptography. A major part of how all these systems work is using cryptography as a way to prove you possess, for example, an address on this ledger, or to prove that you, as a computer verifying transactions, have in fact verified a transaction.

He, or she, or they, were experts in cryptography. To some degree, also economic theorists, because in bitcoin’s case, but in many of the coins and different digital currency models that have emerged, there’s an economic philosophy that’s built into it, as well. There’s a mix of skills that went into that, person/persons, who created the concept. Now that concept has been forked, if you will, and lots of different projects are implementing it.

KS: Let’s talk a little bit about the cryptography part of it, because I think that’s what’s interesting. You went from cryptocurrency to digital currency, so talk a little bit more, because I think when people think blockchain, bitcoin, they get super confused about what the use is. Also, the difference between a public blockchain and a private one. Can you walk us through it, like the idiot’s version of this?

Yeah. I like to step back a little bit from the details and just think about what are the problems that we’re trying to solve here?

KS: Yeah, exactly.

What got me really excited about this, five years ago when I first started reading about it ...

KS: Bitcoin.

Yeah, Bitcoin, but I think the idea that there’s a few missing layers to the internet. We created all these different protocols and then we layered more protocols on top of them. We had TCP/IP and then we built things like SMTP for email, and we built HTTP for sharing information and data. They’re really simple protocols, we all know the history. They were open and anyone could use them and anyone could put them on a computer and then allow email to flow, or allow information and data to flow between computers with things like HTTP. The fact that you had these open distributed networks and you could connect any computer with these softer protocols too, it was really powerful and transformative, as have all seen.

When you look at an invention like bitcoin and blockchain technology more broadly, what we saw was, you know what? That’s now arriving for value. It’s now arriving for how we keep track of value. When you peel back the onion on money, what you really actually have at the end of the day are just a bunch of record-keeping systems. Money is nothing more than record-keeping systems. There is no money. There’s just someone who keeps track of who owes whom what, and that’s it. If we have an open, global, record-keeping system that is very, very secure, it’s distributed and decentralized in the same way the web is distributed and decentralized. Who runs the web? No one runs the web, it’s an open network with protocols that define it.

If you have something like that for record keeping, that’s a huge invention and you can build all kinds of things on top of it. One of the first use cases was how do you move value around the planet in the same way we can move other things around the planet? That was the fundamental breakthrough. The underlying technology, this immutable ledger ... It’s immutable because there’s an incentive system behind it, which creates economic value on the security of the ledger. The economic value is, in a sense, the market cap of the ledger itself, and the incentive to do that is that there’s a finite number of slots on the ledger. If you control a slot, that has economic value. That ledger can be used for a lot of different things.

What people have started to see is, well, yes the slots on this ledger keep track of the units of this thing called a bitcoin, but you can stick things in there. You can, essentially, record something else, a key to something else in there, and it becomes an almost immutable record of something. An example would be, “How do I prove that I own a house?” Well, I have this piece of paper, it’s called a title. That’s a social construct. That title is something that a record-keeping agent keeps. We sort of say, “Okay, the city clerk is the record-keeping agent for a title on a house, and the property law and courts that enforce that.” Fundamentally, there’s a record-keeping system, there’s serial numbers and we keep track of it. How do I prove that I own that? Well, I can go to the city hall and I can produce my government-issued ID and they can give me a copy of it, or I can bring a piece of mail that proves I live at the address.

There’s all these proofs that go on of identity, of records, and they’re quite non-digital. The blockchain innovation really allows us to take everything where there’s record keeping, everything where there’s trust around record keeping and it allows us to make that digital, immutable, permanent and global.

KS: Anybody can check from anywhere?


KS: In essence, you use bitcoin as a way to get in. Bitcoin is a system that was used on it. These blockchain services, are you competing with banks? Or governments? Or what’s the ... Who are you competing with?

Circle, specifically, we are trying to create a new global consumer finance company. The thesis, when we started this really four years ago, was, well, if there are these open networks and protocols for how we store and transmit value, if that exists, then the whole experience of how we pay each other as people, just person-to-person payments, we’ll get recreated around that. The same way we can send and receive an email with anyone, anywhere for free, or we can share a photo with anyone instantly for free. Money will become these digital tokens, and we’ll be able to do that with money. It will just be a free service on the internet, just like all these other things, messaging services, content services, search, all these other things.

That’s itself really disruptive because you take networks that are very centralized and proprietary and you turn those over to the open internet, and you see a commoditization happen where storing and moving money is the same as storing and moving information and data, which is effectively free.

The first piece was, how do you go about doing that but do it in a way where it works more like the way the internet works for consumers today? Which is, things like messaging apps, social media. The user interface of money, in a sense, used to be paper, tokens, and then paper tokens with an autograph on it, and then plastic tokens. Fundamentally, the user interface of money for me paying you would just become software and it would just be built on the open internet. Actually, the user experience itself would be message oriented, it would be social media oriented. That’s how people would express sharing value with each other, because that’s the way consumer behavior was going.

We saw that as the opportunity initially, which is, how do we help do that but do it not just in a closed way. Like there are services from companies like PayPal that allow you to make a social payment. Yeah, they allow you to make a social payment, it’s all built on a closed centralized system. Why can’t it be like the internet? Why can’t I use Circle to pay someone who uses Alipay? To pay someone who uses Paytm in India? To pay someone who uses Venmo? Why can’t it just work the same way email works and the web works? And it can, and blockchain tech makes that possible.

Our belief is that we’re in the process of that happening, and there’s good evidence. What that means is that the retail ... if you look at consumer banking, as let’s say the market that we’re competing in long-term, the payment account, which is we think of it as our checking account, or whatever. The payment account, essentially the tool I use day to day to pay people — family, friends and others, and ultimately businesses too, but just focus on people for a minute. That just becomes more of a free service on the internet and there’s no profit margin and all the revenue associated with it just completely goes away.

Ultimately, that means that money has to be made in other places. We’ve just started talking about this, because we’re now growing a lot and we’re growing quite fast in Europe and we’re growing nicely in the U.S., and the category is becoming a much more important category. Companies like Apple are getting into it with features in iMessage. Big banks are trying to catch up and do their own little network that works just in the U.S. and just with U.S. dollars, The big idea of, “Hey, I can pay anyone, anywhere, with whatever digital wallet they have, and it just flows around the internet,” that’s on the horizon, that’s how we built everything we do. Ultimately, we want to make money by offering people credit, so lending, and we want to make money ...

KS: Until everyone will have a piece of this world, correct?

Yeah, I mean, this isn’t a zero-sum game, right? The web is not a zero-sum game.

KS: Yeah, could it be used for other things besides financial?


KS: Currency is such a weird thing to just even think about. I pulled out a dollar today and I hadn’t seen one in so long, I was like, “Oh, look, it’s a dollar!” I was like, “Why do I have this dumb dollar?” kind of thing. I was getting on a bus and ...

LG: For posterity.

KS: I know, but it’s weird.

This gets to the other use cases of blockchain, which is ... so you can represent that money at its core is this social record-keeping system, there’s a geofence around it, typically. Hopefully that goes away eventually, just like HTTP made information distribution go that way, or the international postal unions that connected countries’ postal systems. We don’t really think about that, at least, as much anymore. Hopefully, that’s what happens with underlying currency. Then on top of currency, you have other financial products that are built. You have things like debt products, and equity products, and commodity products, and a lot of the things that are denominated and packaged, and there are contracts around those.

The next big wave, when you hear about the banking industry or the finance industry getting all hot and bothered about blockchain tech, it’s, “Oh hey, we could represent all these complicated financial products that we have in this and it would make it easier for us to move them around, and record keep them and audit them and so on.” It’s not that exciting, but I think that it gets in a lot of other areas. When you think about trust and you think about record keeping, it covers huge dimensions.

Digital identity is another missing layer of the internet. There is no open mechanism for us to control our identity, and for trusted third parties to add fragments, or attributes to our identity, and for us to then carry that around the world and interact and authenticate with it. The closest thing we have is our Facebook ID and Facebook Connect, or our Google ID and Google’s OpenID connection. That’s not a truly open global model, so identity is one that can be recreated with this.

Then, it gets into all these other things, like voting. Voting is just a record-keeping system of choices and it would be great if we had tamper-proof systems. Obviously, recent events make that feel more important. Tamper-proof systems of voting and governance. We have the mechanisms to essentially assert things about ourselves. “How do I prove I have a diploma? What’s the mechanism so I can do that?” Ownership of things. People get really excited as well about the convergence of blockchain technology and the Internet of Things, everything has an identity, every device has an identity, and you can track it all until it gets Orwellian, in some case.

LG: What you’re kind of describing is this idea of a federated identity that people have talked about.

KS: Global identity.

LG: In a lot of different ways, especially in recent years, as we started to ... For example, our phone as our wallet, right? And our phone having everything about us. It seems as though because everything is centralized and closed networks and closed apps and walled gardens, it’s hard to actually have that kind of unified identity.

There’s these single points of failure, right?

LG: Mm-hmm.

Someone can be hacked. There’s also single points of trust. Where do you put the trust? The beauty of a public blockchain is you don’t have to trust anyone, so to speak. The records are everywhere, at the same time, and you prove things just using cryptography. You prove that you control, say, your own identity record by having possession of a private key, which is in public key cryptography, that thing you can use to sign a message that proves you control it.

There’s this idea of a brain wallet, if you haven’t heard of it. It’s pretty powerful, which is a way to prove that you have a key by essentially representing that key in a phrase, a passphrase. As long as you remember that passphrase, there doesn’t have to be a digital artifact anywhere that you are trusting someone with, other than the phrase in your head.

LG: You mentioned earlier the word unhackable, that blockchain is unhackable. How is it unhackable? Speaking in layman’s terms. How is it that something that exists on a network is something that would not be hacked?

Sure. You have these records, and these records of the transactions are cryptographically recorded. In order to change the records, you have to control the entire network, and it’s a distributed and decentralized network. In order to control the entire network, what that essentially means is you have to take over greater than 50 percent of what’s called the hashing power, which is you need to have greater than 50 percent of the computing power that is applied to secure the network.

In the case of bitcoin ... I don’t have the recent numbers, years ago the numbers were insanely impressive. It’s a gigantic amount of computation that would be needed. The only real way would be sort of a breakthrough in cryptography, like quantum cryptography, and for someone to be able to deploy quantum cryptography secretly, so that people who operate on the network were unable to detect it even emerging on there.

There are sci-fi scenarios and there are scenarios that you can imagine, where there’s an amount of computing power that is just orders of magnitude greater than the computing power that we imagine even possible today, that could be applied to attempt to reverse just the most recent set of block of transactions.

Think about something that happened three years ago, four years ago, five years ago, or even six months ago that’s recorded in the ledger. To reverse all of that, it’s technically possible with a scale of computing power, but economically not feasible and theoretically it would seem it would require a giant effort by a major state actor.

KS: Which is what everyone’s looking for, not that they wouldn’t do that, by the way, Jeremy.

People talk about bug bounties, like, “Hey, there’s a bug bounty, you can try to hack the Facebook login and if you find a bug you get a bounty,” or whatever. The world’s biggest bug bounty is out there right now, and it’s got a $100 billion market cap. There’s $100 billion of value sitting out there, and you can try to take control of, say, the bitcoin network, but it’s mathematically almost impossible.

KS: Bitcoin really isn’t the point anymore, right? You started off like so many bitcoin companies, but that’s not really the point, it’s a larger idea.

Yeah. There are many evolutions that are happening right now. It’s really exciting, from that perspective. When we got started four years ago, we saw what bitcoin was doing and said, “Okay, it’s now possible, this idea of these open networks for value exchange, and doing it in a way which feels very internet.” We also felt like, “Hey, there’s a lot of promise, there’s a lot of missing pieces, it would be great if you could do a lot more with this than just the single use of bitcoin.”

KS: It’s bigger. Right.

A lot of other people felt very similarly. It really came from ... There were camps that said, “Hey, we really like this, but it’s actually not anonymous enough.” There’s people who crave even more private and secure versions.

KS: It’s just one small piece of it, that was my point. Okay, in a minute we’re gonna take some questions about Bbockchain from our readers and listeners and Jeremy’s gonna answer them. But first, we’re gonna take a quick break for a word from our sponsors. Lauren?

LG: I think there should be a special version of this that’s like a cryptocurrency. Crypto-ching!

KS: Crypto-ching!

I don’t know.

KS: Okay, all right. Here we go!


Okay, we’re back with Jeremy Allaire, the CEO of Circle, talking about blockchain — not bitcoin, blockchain! Now we’re going to take some questions from our readers and listeners. Lauren, do you want to read the first question?

LG: I would love to.

The first question is from Alexandre Guertin, @guertin_alex on Twitter: “What problems are crypto currencies trying to solve? Seems like PayPal, Apple Pay, Square, etc., address everything #TooEmbarassed.”

Yes, sure. Crypto currencies, obviously, they solve a lot of different problems, as we talked about a little bit before, that have to do with record keeping and all of this. But specifically within the realm of payments, the payments world today is a lot like where we were 20 years ago with how communications worked on the internet, or online services. You could get to content online, you could dial up to a service like AOL, and there was all this content on there. That felt like a lot of information to people, like there’s more information than I’ll ever need here and it felt like I could communicate with someone through an email if they had an AOL account, and so on.

The world of money is sort of similar. We have all of these closed networks. If you happen to have PayPal, then you can use PayPal. There happens to be a fee on in, it’s a 3 percent fee to move value around with that. If you are in another country, it might be a completely different system, and it might be administered by, say, a government agency, or by a consortium of banks.

I think what cryptocurrency’s promise ultimately is, is that there’s just a way to store and move money around that is more similar to how we store and move information around. I think it was hard for people to imagine free instant global communications 20 years ago, and people thought, “Oh, I don’t really send international letters very often, it’s fine. If I need to send a letter to someone internationally, I can do that.” Or, “I don’t make a lot of international phone calls, or even long-distance phone calls, I kind of have a way to do that.” Or, “You know, if I really need to get someone a piece of information fast, there’s this amazing thing called a fax, and that’s fine, it’s good enough.”

I think people, they’re sort of late in aspirations. People don’t realize once they have something that’s a completely frictionless, open, global thing, how broadly the utility of that increases. If you measure the volume, say, of human-to-human text communication that exists today, versus 25 years ago, it’s just off the charts, the amount of global human communication that happens. If we reduce all the friction and all the cost in changing value, what does that look like? Do we see dramatically larger increases in the kinds of human value interactions that can happen?

KS: Okay, all right.

I think that’s the bigger question.

KS: You’re saying it’s like we have AOL right now and we need the internet. Let’s move on to the next question, we want to keep these pretty quick. All right, next question is from Josh, @sir_schwartz: “What makes one cryptocurrency more or less valuable than another?”

There’s the speculative piece of this. Clearly, if speculators think something is more interesting, that may drive the value higher. That isn’t, obviously, a very satisfying answer to people, but that is actually very much the case in some of these situations right now, and sort of where is speculator activity. I think underlying this, though, and more fundamental, is what utility value does the cryptocurrency provide?

Bitcoin, for example, it provides this very, very, very secure system with a finite number of slots in it. That’s the finite number of coins, so to speak. It’s perceived as really valuable because it’s so secure and it’s got a finite number of units and that is part of the perceived value. Something like etherium has grown really dramatically in value in part because its utility is much broader. It doesn’t have a finite supply, in fact, it has a philosophy of essentially diluting 1 percent a year forever.

KS: Can you explain etherium because we have another question right after from Hadri Halim, “Is etherium a type of blockchain?” Again, be super brief for people here because we’ve got a lot questions.

Yeah, sure. Etherium builds on some of the ideas of bitcoin, but the idea is a much bigger idea. Etherium you really can think of as the world’s first global computer that no one controls. It is, essentially, a global computer, like an Amazon Web Services, but Amazon Web Services is centralized. Etherium is a global computer, where I can write a piece of code and deploy it and it can run over this network, and it can run in a highly secure way, in a tamper-proof way, and the data is entirely tamper-proof and secure. It is a global computer that no one controls, a decentralized virtual machine.

For a lot of different applications, that is incredibly valuable. That is why it has seen such a surge in interest, is because its use cases are really conceptually as broad as the use cases of a computer. Think of it like it’s a global computer that no one controls just like, in some ways, the web is this global information network, I think people originally thought of it as this global database of information and content that no one controls. It’s, obviously, quite different but similar, but as an environment to run software code. That’s a little bit about what etherium is.

LG: Next question is from Kevin Swint, @Kswint on Twitter: “Since bitcoin transactions don’t scale and costs/transactions are around $4, how does this ever work as a medium of exchange?”

The scaling issue is a big one. There are lots of different technical ways to scale bitcoin, and they’re being worked on, and I’m not too concerned about that specifically. I think what underlies that, though, is a bigger philosophical debate, if you will, about is bitcoin for small transactions, [like] that cup of coffee that you buy at the coffee shop? Or is bitcoin for bigger-batch transactions? Like the transactions that happen between banks, where they’re moving bigger chunks of money.

One philosophy says we should keep the core of bitcoin as really for those big-batch transactions, and it’s okay if they cost $4 to do that, because you’re talking about moving much, much larger amounts of money through that, and it’s the value of a tamper-proof, secure ledger that you’re paying to use. Then, there are innovations. There’s something called the Lightning Network, or a broader concept, which is called Payment Channels, which essentially lets you create another adjacent layer to bitcoin, where you can move things around using bitcoin but instantly and with virtually no fees.

There are ways to scale where you maintain the security and integrity of the underlying system but it’ll cost you a little bit more, but then you have these other ways to make things really fast. There’s lots of ways to do it; short answer is you can have your cake and eat it too.

KS: All right. Next question from Anshul Kapoor, “Is bitcoin really a safe haven? Why is bitcoin worth more than gold when it is not physical?”

It has to do with the understanding of what money actually is. Gold was ... people say it has intrinsic value. While it has intrinsic value because it can be used in industrial applications, it can be used as a metal, and so there is value as a metal. It’s, obviously, valued because when it emerged, it was a way you could divide it, so it was something you could ... you have different units of. It was measurable, and it was not easy to forge, and it’s very, very hard to forge, so it’s something that you couldn’t counterproof. It had a known or scarce supply. Scarcity, the ability to use it as a mechanism to measure things, but also the chemical properties that made it unforgeable. All those things made it attractive as money.

KS: It’s also pretty.

And it’s global. It’s what’s called a bare instrument. If you have it, you have it. If you possess it, no one else has it. It’s an I.O.U. that’s subject to the whims of a government, theoretically.

KS: Right, like jewels.

Those things all make it really attractive. It turns out that bitcoin has all those attributes and more. It has that measurability, it can’t be counterproofed. There’s a fixed, or finite, supply. It has all those, and it can be transmitted intergalactically, instantly, which is really much better than gold.

KS: Intergalactically, all right. Next question.

LG: This is definitely the currency choice of Elon Musk on Mars. This is a good segue, I guess. Next question is from Gullible Reporter on Twitter, “Do people pay taxes on their cryptocurrency? If so, how?”

The IRS issued guidance a while ago, at least a couple of years ago, which said, “If you buy bitcoin, you are buying property.” Just like if you bought a stock, or if you bought another type of property, but essentially you’re buying property, it is an asset. That’s how the IRS classifies it. They don’t classify it as currency, they classify it as an asset. If you then sell it, and the asset has gained in value, you’re looking at being subject to capital gains tax, or income tax, depending on the rules of your government.

In the United States, yes, you have to pay taxes. Now the guidance from the IRS also basically said, “Well, jeez, if I’m using this as a medium of exchange and I bought some and I immediately sold it, and I didn’t even know I did that, but it was how I paid for my cup of coffee,” they don’t care about that. They don’t care about small transactions. They care about people who are using it as an investment, and investing in it that way and it is treated that way and taxed that way.

KS: Yeah, it should be.

If you haven’t reported, you should really do that.

KS: Yeah. This next question is similar from The Middle, “Yes, I have a question. Can you tell me why I didn’t buy bitcoin at 250? I thought it was trading too low, thanks.”

I don’t know why they didn’t buy bitcoin.

LG: Kara, didn’t you buy a bitcoin at some point?

KS: I have some bitcoin, I just forgot where it is. I know, I actually bought it at very low amount. What’s it at right now, Jeremy?

It’s at roughly $2,500.

KS: Oh, then I made a lot of money. I bought it real cheap, I bought like three bitcoins, so it makes enough to buy a car, I guess, or whatever. I have like 10, I forget. I have them somewhere, but I literally don’t know where. I forgot.

That’s the scary thing about this.

KS: Maybe it’s at Circle, who knows where ... Where would I have put them Jeremy, back then?

Yeah, maybe Circle, maybe Coinbase, something like that.

KS: I don’t know. Somewhere, they’re somewhere.

LG: Even if, let’s say, one of those services becomes obsolete, not that your service is going to become obsolete, but we don’t know, right? Then, because of this ledger that exists, this immutable, permanent ledger, Kara would still be able to find that, right? Somewhere?

Well, yes and no. If you’re trusting a third party to keep what are called the private keys, so if you’re entrusting that third party to keep ...

KS: I think I did. I forget.

Yeah, you did, I’m sure, ’cause that’s the sane thing to do. We all don’t want to have private keys stuffed under our mattresses, so to speak.

KS: Yes, I would. That’s where my bitcoin is, stuffed under my mattress with that pot, that marijuana from the ’80s. I’ve got a lot of things in my mattress I forgot about. There’s some coin somewhere. Some foreign currency, I don’t know. Don’t come to my house, all you robbers, to get my bitcoin. Anyway, Lauren, why don’t you ask that very last question? I still don’t know where it is.

LG: Okay, very last question is from someone named Walt Mossberg.

KS: Yeah, it’s a verified account.

LG: Who keeps finding his way into our podcasts, and we welcome it. “Should people put their retirement savings in blockchain currencies? Asking for a friend.” Should Walt Mossberg put his ...

It’s really interesting, because I came to AllThingsD many years ago and Code, I don’t know when you changed the name, I forget.

KS: 2014.

But it was still AllThingsD and then Vox ... Actually, I was doing Circle then, in those early days, and when we talked to people about this and what we’re doing, they didn’t want to sit at the same table because they thought maybe we were doing something illegal. Jeez, wow.

KS: Mm-hmm, drugs, I thought drugs immediately, Jeremy, that’s what I thought.

Fast-forward to this last time and Shawn and I, my co-founder, it was really notable at your event this last year because, like Lauren said, there’s this packed discussion we had and so on, but the conversations we had around the lunch table, so to speak, were really, really different. The questions were really that. A lot of people were saying, “Should I be exposed to this asset?”

I think that is becoming certainly more mainstream. If you look at the huge growth in this category and the capitalization of the 100 billion, it’s overwhelmingly being driven by retail investors. It’s being driven by private wealth managers, and family offices, and other individuals that are saying, “I want to have some exposure to this for optionality,” like, “Hey, if this is as big as the internet, or as big as the web, or whatever, and I can buy ‘shares’ in it now, that would be a smart thing to do.”

Look, everyone’s situation is different. Everyone’s personal financial situation is different. I think what I picked up from it, talking to some folks that were pretty savvy in managing, say, the wealth of people in Silicon Valley, was everybody should have at least 50 basis points of their investment assets exposed to crypto-assets. That would be a sane, smart thing to do.

KS: That’s a lot of crypto-assets.

Could you go bigger than that? Sure. Could you go smaller than that? Sure. It all depends on a person’s situation. Sort of the half a point exposure. The challenge is that there aren’t super convenient ways to do that yet. People, generally, don’t want to go and get on an exchange and buy and sell, and worry about how do you custody and hold this, and so on. There isn’t a way for you to just call up your investment adviser, whoever that is, wherever that is, and say, “Hey, I wanna have $10,000 of exposure to this and I don’t wanna worry about it.” We’re not quite there. A lot of people are waiting for that. I think that’s on the horizon, but there are a lot of very savvy people who are getting involved in these assets, especially as they go from just the digital currencies themselves ...

KS: Yep, definitely banks.

... to these new types of tokens that really represent next-generation protocols and the internet you’re investing in.

KS: Yeah, I think I just had the bankers ask me if I wanted to like ... I was like, “Oh, no, I’m too old.” I’ve decided I’m too old. Just like, “Get me a pile of gold and I’ll carry it around my back pack.” That’s what I’ll do. Hand it out like, take a chunk ...

LG: Put it under your mattresses.

Ship it to Mars.

KS: Currency is so stupid, if you really think about it. There should be a global currency.


KS: It really is the dumbest thing ever.

We will look back and say, “I can’t believe that we all had these paper tokens.”

KS: Although people who don’t like world governments ... Can you imagine the anti-government people with crypto? They’re just like, “What? A world currency?”

LG: Yeah. Just wait until people are paying for our stories on the blockchain.

KS: On the blockchain.


LG: Yeah. Every time you follow a story, Kara, you’d have to accept some form of crypto payment.

KS: Yeah, instead of the stupid penny things.

Well, there is actually a lot of excitement about this whole immutability thing like fake news, where is information, how do you prove a fact. Blockchain’s actually become a way to ... if you can get a content system on top of it, or a Twitter-like system on top of it, you can actually mathematically prove was this real or not? There’s some implications that are starting to bleed into content, and digital rights, and facts, and how do you represent a fact in the world, and know that it is, in fact, true and that everyone agrees to that.

KS: Now, if we could only solve for human stupidity, that would be nice.

LG: That’s the next episode of Too Embarrassed.

KS: We try on stupid, but it’s a losing game.

All right, this has been another great episode of Too Embarrassed to Ask. Jeremy, thank you for joining us.

You’re welcome, absolutely.

LG: Yes, thank you for joining us and trying to explain Blockchain for those of us who may have not known too much about it.

KS: Speaking of human stupidity.

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