Reid riffs on cryptocurrency, stablecoins and regulation

0:29I'm Reid Hoffman. crypto is it is a polarizing topic. There are some people who are all in. It has changed their life for the better. They're imagining so many use cases for blockchain, crypto, etc. There are other people who see it as useless. And so really wanted to get your take on the Financial Times podcast earlier this year. You've always support for bipartisan efforts to create a more rational regulatory framework for digital assets. And while I am not the hugest crypto fan, I am super in favor of creating a playing field that people understand. So there are not grifts and there are not people getting insider information, et cetera.

1:06And so since then, the Genius Act has passed the Senate. It's on its way to becoming the first piece of U.S. legislation that really defines a pathway for stable coins and tokenized commodities. So you've been vocal about the need for pro-innovation regulation. So how do you see the Genius Act, if it passes the House, shifting the trajectory for crypto startups, investors, and the entire community? Well, exactly what you're saying. I think one of the really important things is to have it be relatively well understood. I think that the crypto side of what was going on in the Biden administration was exactly the kind of things that the Democrats have been doing to kind of generally alienate a lot of the tech community.

1:53You know, anything from large companies, you know, hence all the comments about Lena Kahn, who thinks she's in defense of startups and doesn't understand that she's actually, in fact, hurting startups in terms of what she was doing. or, you know, similarly, like, okay, this crypto stuff has a bunch of questions to it. Like, is it being used for illegal activity? Is it being used for, you know, kind of extra financial stuff that, you know, might be endangering your average citizen or might be used for, you know, kind of corrupt practices in various ways. I mean, even members of the tech community have spoken out against crypto as being primarily a form of illegal economic flow for like, you know, cybercrime and a bunch of other things.

2:40Do you think that's true? Do you think crypto is mostly used currently for cybercrimes, et cetera? Well, certainly a lot of it's used. I mean, there's certainly a major use case there. Percentage, I don't know, but there's a major use case, you know, and it's, for example, when the North Koreans, generally speaking, take over hospital systems and threaten to all the lives of people there, they want payment in Bitcoin. Those are serious problems. And so the people who are critical are right. But the problem is, and this is kind of a microcosm, I think it's one of the reasons why it's a good subject, it's a microcosm of what they generally call it a stupid, foolish, negative approach to technology is, which is, oh, my God, look, Bitcoin's being used to do this bad thing of North Korean extortion of hospital systems.

3:33Let's nuke the entire Bitcoin establishment for doing this. And it's like, well, but cars are used for driving into groups of peaceful demonstrators. Let's get rid of all cars, et cetera, et cetera. And obviously that has a lot of positive use cases in the crypto people say, well, what are the positive use cases? And actually, in fact, there are a set of positive use cases even today, you know, whether it's the, you know, kind of general flow of electronic payments that's happening in a lot of emerging market countries, you know, kind of stable coins, other kinds of things, ways of doing it. places where the high cost Western banking system is, you know, way too expensive for the burden of these economies.

4:15There's a whole stack of things where it is actually useful. That doesn't mean that this is, you know, like North Korean Bitcoin, you know, cyber crime doesn't mean that that isn't a serious problem that we need to do something about. Now, the challenge is, is what you want to do is you want to say, hey, what's the solution here? It's how we evolve the technology. It's not go hit technology per se with a big stick. It's the how does this get shaped in terms of what does it do to have more positive use cases and have less negative use cases and also less, you know, in the negative use cases, less systematically bad.

4:55I mean, I'm using the hospital example because, you know, this threatens people's lives literally in terms of in terms of how it operates. And so a framework for it and a framework to understand, not saying, hey, we're not going to come after you, but hey, we're going to come after these kinds of things and we're not going to come after these kinds of things. And so, you know, you can imagine, you know, questions around, well, you have to have, you know, kind of know your customer stuff more. You must have, you know, questions around, you know, like when Bitcoin is being used to like, say, for example, pay North Korean hacker groups.

5:33There's something you're trying to do on that vector. Now, that may actually be, you know, more, you know, kind of nation state kinds of things. And part of that nation state is we kind of live in a universe of cyber war that, unfortunately, we should get the countries to work together to get us out of that set of cyber war. It's a huge tax on societies and industry and everything else. And I think it's just because your average citizen doesn't see it except in movies about evil fishing groups stealing grandmothers' life savings. you know they don't they don't understand that this is a in fact a general problem you know that's the general technology thing so i think the genius act is a great thing to say hey let's try to actually in fact have a you know kind of question of you know here's where stable coins can be really useful here's where they can play a good role within the financial system within the global community you know here's where kind of tokenized commodities you know play in in terms of how they're, you know, kind of operating.

6:39And it doesn't mean it's the end, but it's a very good beginning. And it's kind of the way that you should be, you know, trying to shape what is our iteration of technology to better futures. And it's taking something that's, you know, high contention, the, you know, kind of crypto universe, because, you know, part of the thing that, you know, the banking industry would like to see, and you're also like, no, no, all financial ecosystem is entirely within the current banking regulatory system. And the answer is, well, that's not necessarily the case that every financial thing should be there. All the major ones and the things that play to the functioning of society, the functioning of global societies, you know, those should have monitoring, controls, touch points.

7:30But, you know, Part of the reason why we see a lot less innovation, generally speaking, in fintech is because when you implement this kind of regulatory regime, their thing is no failure, not better improvement and success. And that tends to be anti-innovation. And so do you see, I feel like in 2021, 2022, it was like this gold rush. It was like you saw so many NFT startups. You saw so many crypto platforms. Like investors were investing heavily in this space. Do you think we're going to see that again or are we already seeing it again with this sort of pro-crypto government? I think we will see it.

8:09And we're already seeing it some. I think we'll see a bunch more. I think part of the thing, generally speaking, one of the reasons why the U.S. and China tends to lead the world in this kind of tech stuff is it tends to be the ask for forgiveness versus ask for permission. So go iterate and try things and then we'll shift it around, including in kind of difficult ways. And people say, well, but sometimes it's very difficult to shift. It's like, well, you know, frequently when it's difficult to shift is because not always there are challenges there, but frequently it's difficult to shift because it actually met some kind of, you know, kind of scale position within society, within the economy, et cetera.

8:50And so the fact that there's a lot of people who want to engage in crypto, that's a market signal demand. And so the question is, well, how do we shift the market signal demand in a way that is, you know, kind of iteratively more and more positive to creating financial ecosystem, things that allows, you know, broader communities, you know, not just, you know, call it wealthy Western communities to participate in. How does it allow innovation and doing it? And I think that's the primary question we should be asking while, of course, we deal with some of the threats and challenges that also come with the crypto ecosystem.

9:31So I want to dig deep into you had mentioned stable coins and you also talked about creating prosperity for not just Western communities. So one of the reasons that I'm skeptical about crypto is, as you said, you always weigh like, what are the positives? What are the negatives? In AI, I see the negatives, but I see enormous more positives. In capitalism, I see the negatives, but I see enormous more positives to that system. And so in crypto, I see the negatives and I'm always sort of trying to figure out what are the real positives to outweigh them. And one of those places that I got really excited was thinking about stablecoins.

10:05And you have these stable coins pegged to the U.S. dollar in countries that don't have stable currencies, where bad things can happen in the financial system. But you have actually this dollarization, which could lead both to more stable economies, but also more power for the U.S. But do you think that that is an upside that we could look at? How do you think about stable coins? Well, I think actually you just sketched, not surprisingly, given your own economics and intelligent background, exactly a very positive case, which is the fact is the stable coins with the dollar. I think there's also other, you know, the Genius Act tends to be positive on the dollar stable coins and less positive on the algorithmic.

10:48I actually think algorithmic is also an interesting area to explore. But I think the dollar coins are good, A, for the world, B, for economies that are having challenges and financialisms that are having challenges, and C, for the U.S. in terms of the, you know, reserve world currency. All exactly as you sketch. And I do think that crypto, you know, it's like, for example, part of the reason why we, you know, started doing the read AI stuff is like when you look at deepfake stuff, it's like all kinds of problems deepfakes. but actually in fact as you begin to think about it you realize there's a bunch more positives and we just need to iterate and deploy to do that even if you start with you know the the first uses tend to be the system the things that are way outside the current economic social acceptable norms and so forth i mean it's kind of like early internet you know what was the avenue new Q musical song, you know, internet's for porn.

11:45And, you know, like, yeah, it was intensely that and it iterated well past that. And I think that even in cases where the initial cases might have a disproportionate balance to some really negative challenges, you know, that's just a question of how do we iterate towards a positive? And that's what I generally think of as crypto. I think the stable coins are good. Matter of fact, I actually think even, you know, diversity of different assets. I think it'll, you know, it'll have things where we're actually would play into identity ecosystems. I mean, there's the whole world coin or are you human in the age of AI?

12:22Um, I think that there is, uh, you know, kind of questions around, you know, kind of like most people don't realize how much we already have digital assets, like, you know, the deed to your house and your car, those are digital assets, you know, the different ways that these kinds of record, uh, might be kept in way that they're not in kind of solo hackable institutions. I think that's all very positive. And I think it's kind of the question of, look, how do we iterate towards it? And people say, well, but right now I see a lot of, you know, criminal payment. And I see a lot of, you know, random speculation that doesn't seem to be anything other than economic speculation.

12:58And you're like, yep, these things can start messy. And the question is, how do we refine them to, you know, to iteratively better and then get rid of the really bad ones? So like I'm much more worried about, you know, North Korean hacking of hospitals than I am of, you know, people having, you know, random meme coin X. Yep, absolutely. Well, so we started the conversation by talking about how the Genius Act and adding, like, again, pro-innovation regulation could be a good thing. But when you think about these administrations sort of flipping back and forth, it's hard to build a community. It's hard to build a company.

13:35It's hard to build an ecosystem when, you know, the future of crypto policy just hinges on which party controls Congress and the White House. So, you know, you've talked about how tech regulation is shaped not just by the laws on paper, but by the character and incentives of the political actors themselves. I think that's especially relevant now. On one side, we're seeing reports of lawmakers personally holding tokens that they're helping to regulate, which I don't love. But on the other side, you also see the Democrats just sort of reactively having anti-crypto messaging sort of just to be against the other side.

14:09And that is not positive either. I don't think it's positive for the future of the Democratic Party. And it's also obviously not positive for the future of crypto. So how should we think about the long-term viability of this ecosystem when potentially, you know, the rules of the game change, you know, every four years? I actually think there's a more general thing about part of the reason why I think the U.S. has been, you know, over the last number of decades, so much that the tech leader has been actually a paradoxically stable environment because of the ask for forgiveness versus ask for permission.

14:44it's like look generally speaking we allow a lot to be created and we may go back and fix it and then say and here's what we do from here on out and maybe you know random player x y or z you know made a whole bunch of money that they really didn't deserve in doing it this way but you know like what really matters is the future generations of the system and that's the thing and we get to the right place. And so the problem with the swings is that, you know, then that quells, you know, business innovation generally. And so swings on crypto can do that. Swings on AI can do that. Swings on, you know, internet policy can do that.

15:25And so it's the, you know, kind of the The notion of, you know, stable, allow innovation, allow risk taking, allow failure and footfalls. And people say, well, are you endorsing Theranos? And you're like, no, I'm not endorsing a lot lying about blood tests that affect people's lives. Right. But, you know, if you want to go try a new set of NFTs, I might have had arguments with, you know, close friends of mine like Rory Stewart is like, NFTs, that's not art. That's just crap. You know, you know, who, you know, why would someone buy this bored ape thing? And we specifically had an argument about bored apes.

16:07And, you know, the thing is actually, in fact, no, no, it's not just what it is now. It's what it can become. And, you know, you've got Rafiq Anadol doing great things with NFTs about art from, you know, kind of this kind of AI iterated art from the Amazon. and then supporting, you know, the education and communities, a bunch of Amazon communities in so doing. So it's kind of like, look, let's have more of the good, right? And less of the bad. And I'm not obviously an anti-board ape person. I'm a believer in experimentation and online communities and, you know, heading into the future. People can have that right.

16:46They don't think it's art. That's so fantastic. You probably shouldn't buy it then. You know, I think that's great. That's what's great about our world. and as we innovate new things, some will take up and some won't. I mean, one of the things actually that I worry about is I do think some of the negatives of social media have negatively polarized people against all tech. So it's like, oh, I hate tech. Do you see what Facebook did to our kids? They're like, oh, I hate tech. Do you see what X? It's a hellscape. And that's all people can think about. And they don't think of the truly, you know, dozens, thousands, millions of other things that technology has done.

17:20Do you worry that crypto could become a catalyst for policymakers to become even more anti-tech? Like, does that take the place of social media or is that an overblown concern? It's possible it does, although, you know, since social media occupies that position with such vigor and strength. And, you know, it's one of the things that, you know, I think one of the things I think most non-Silicon Valley people are surprised to hear that a bunch of Silicon Valley people are also concerned about social media when it comes to children. right there they tend to be much more like no no actually in fact for adults you know hey we should generally be permissive of kind of adult choice and so forth and there's even then there can be i think reasonable arguments about like well what are you doing to increase overall agitation or division or hatred or name calling in society um and you know if you want to see a poster child of that, just go browse Twitter or X for that.

18:20And the thing is, is say, no, actually, in fact, I think, you know, civil discourse is important. I think learning ecosystems is important. But more importantly, part of the reason why we have a whole set of laws that create children as a special class is because it's the iterative pattern about what you learn before you become an adult and you can decide, you know, you that, you know, you can do something stupid, right? We say, well, that's when you're an adult, you can go do that. So I think there's an ongoing social media thing where I think anyone who is broadening discussion to everything should really just focus on like, look, what should we think about children here?

19:02Let's start there. And then, um, now if you said, well, what should cryptic, he's like, well, children should not be at risk from crypto, right? And so, you know, there's a whole bunch of different things there. And I do think that people will try to grandstand around on crypto. They'll try to grandstand on AI. They'll try to grandstand a number of things to kind of say, hey, I'm really important because I'm trying to stop this evil technology. And, you know, that's, you know, that's just like, you know, the LUDs trying to stop the loom. Absolutely. It's coming for us. Well, I mean, actually, one of the things that people worry about for AI is that, like most technologies, it is inherently centralizing.

19:46And some people in the crypto space see, you know, that AI centralization as sort of on the path toward authoritarianism. And they see that blockchains are one of the best ways to decentralize power and you can expand access to world changing technologies like AI, digital ID, payments, etc. by combining the sort of centralization powers of AI with the decentralizing hopes of crypto. And so do you see meaningful synergies between AI and crypto and or red flags when the two of those are sort of coming to fruition at the same time? Well, it's funny. Some number of years back, this might even be five, six, seven years, Peter Thiel and I were doing an event at the Hoover Institution moderated by Neil Ferguson.

20:40And Peter said, crypto is libertarian and AI is communist. And I was like, well, if I, you know, I like both technologies, but obviously, you know, the changes in the world that we can get with AI, that's one of the things I'm quite willing to kind of bet on. Now, part of the reason I didn't divert us into that discussion in depth is because actually, in fact, ultimately, all technology is inherently centralizing, including AI, including, by the way, crypto, ultimately. The thing that makes some technology patterns work is because we as a society enable that distributed ecosystem. So let's take as a parallel, you know, the fact that we use encrypted signals on our cell phones and, you know, encrypted, you know, kind of data stores and so forth on them.

21:37Well, you could just as easily as society say, we're going to send a drone to go arrest or assault anyone who's using a cryptid radio channel. You could say if you're caught with a encrypted hard drive, just the fact it's encrypted is the equivalent of a 10-year felony. But what we do, and part of being in better societies, is we create more decentralized technologies. We enable that kind of decentralization. We enable the encryption on the mobile phone. It's one of the reasons why, you know, part of the reason, like every so often, some wag at the FBI comes along and says there should be a master key to all encryption.

22:21And that's a bad idea, right? Because it weakens the entire ecosystem and it's better for our society. And yes, that puts an increased burden on how do we chase down criminals and criminal gangs and so forth. And we should increase our ability to do that, but not by creating a master key. And so that's one of the things I like about crypto is crypto is enabling that kind of distribution. So it doesn't I don't tend to worry about the pure centralizing of technologies. Like, for example, you know, it's very common, especially amongst lefties, very common to say, you know, facial surveillance technology is bad.

23:02and you're like and then they'll cite studies from east germany about how the stasi you know created a system of oppression and of course if that technology is being used against you to oppress you then you have a serious problem you know kind of like what's going on with the uyghurs in china and you know all the rest of that stuff but on the other hand you know one of the cities in the world that has had broad-based surveillance for for many decades is london right and london actually, in fact, uses that because the citizenry goes, oh, this is generally for us, not against us. It's you see an emergency, a medical emergency, respond to it.

23:41Generally speaking, if you see violent crime, you respond to it. And it's not used for other things, you know, for this. And that governance of it is the thing that essentially really matters. And I think that's part of the reason why I actually think that, you know, deploying in American cities, you know, facial surveillance technology is generally speaking good, you know, AMBER alerts for children, all the rest. You just got to make sure it's not used for bad. And of course, then that's where the real rubber hits the road because people say, well, government always turns bad at some point. And so you're like, well, but I actually think the energy is trying to keep government good, for example, accountable to judiciary, which I think, you know, which we're having some challenges on.

24:23I was about to say, right now, you're going to have trouble finding some people to sign on. More skeptics, you know, 2025. But it's one of the reasons why a healthy judiciary is such an important part of a well-governed society. And, you know, it's why we say, hey, you have to go get a warrant for that. Because the enforcement branch has to go talk to the judicial branch and make a case that a record is kept of and can be reviewed to see if a crime was created in doing that. And that's the way, you know, these things should operate. And I think you want technology to be operating within that framework and it will be inherently centralizing.

25:01So now, you know, I think we will see places where AI and crypto will come together. And I think we will, you know, as one of the things that I sketched when I first saw Bitcoin back in 2014 is I said, hey, you know, for those people who want to create immortality, you create an agent. This was even poor, you know, generative AI that funds itself with crypto. And it can sing the ARIA praises for as long as the crypto doesn't run out. And we have the ongoing stories, or at least the continued, you know, kind of existence and persistence, you know, even, you know, decades and centuries into the future, potentially.

25:50All right, Reid, appreciate the deep dive on crypto. I promise I will keep an open mind going forward to all the positive use cases we can come up with and appreciate your time. And, you know, I'll go see if I can make an NFT of this conversation. Sounds great.

26:12It's hosted by Ari Finger and me, Reid Hoffman. Our showrunner is Sean Young. Jenny Kaplan is our executive producer and editor. Possible is produced by Katie Sanders, Edie Allard, Tanasi Dilos, Sarah Schleid, Vanessa Handy, Aliyah Yates, Paloma Moreno-Gimenez, and Mulea Agudelo. Special thanks to Surya Yalamanchili, Sayida Sepieva, Ian Alice, Greg Beato, Parth Patil and Ben Rallis.