Getting into Bitcoin Early (w/ Raoul Pal & Bill Tai)
RAOUL PAL: As this whole space develops, so we've got these huge developments going on in cloud, I guess, that seems to be happening. Then we got the distributed computing power, edge computing and that's just all allowing more and more processing ability, and then within that, suddenly, that's allowed, it looks like this ability to create the internet of, well, assets or money or value, or whatever it is, how big a thing is this? Where is a Silicon Valley because I'm really interested, as you know, in this whole blockchain, crypto, digital assets world because it's the crossover of my world and your world. It's macro meet Silicon Valley and it's fascinating. How is that movement in the West Coast? Do people see it? Is it a really big thing because Andreessen Horowitz seemed to be really putting the whole business behind this now. Tell me a bit about this movement that's going on. BILL TAI: It is. What's interesting is that I'm going to answer that on a couple of dimensions. One is that Silicon Valley is definitely an insular place. It has its own way of thinking about things that some people call it a bubble, whether it's a financial or a thought bubble, or just whatever it is, it's a little different. There was a certain type of person that came out to Silicon Valley in the '80s, '90s and they came from all over the world. If people were interested in electronics and physical things like this was geek heaven in the '80s and early '90s, and then it started to become a little bit more commercial and transactional with the internet. Silicon Valley has its own way of looking at things and because it became the center of the universe for that development for a while, and actually, it still is, it was an interesting thing when the internet hit. I was convinced at the beginning of that, that the internet would democratize everybody and that the software engineer in Bangladesh would be equal to the one in San Jose, because they could get information equally. That was true, but what ended up happening was as the internet spread, that person in Bangladesh would wake up and say, I should be in Silicon Valley, and they would get on a plane and move. That network reached out, touched everybody and then sucked all the assets into Silicon Valley, because everybody wanted to be commercially productive. Then it imploded. Then some people went back home. Silicon Valley goes through those waves, but there's a high concentration of the more aggressive people that are willing to try new things here. That's become its own ecosystem. That said, I think what's happened in the last eight or 10 years in particular is that we had-- you know that movie, there's one of the original Star Trek movies where Spock goes back, he goes into the nuclear reactor to take out the thing, and then they have to bring it back to life because he dies, so there's the Genesis project. Then there's this like green shoot that shoots out on the ground, and it goes everywhere. Technology is like that now. You had this idea of concentration in Silicon Valley and over the last eight or 10 years, the opportunity to fund and build and create companies worldwide has expanded like crazy. I think it's a couple of dimensions. One is that in the earlier days of Silicon Valley, it was all about miniaturization of hardware devices and engineers selling to engineers things that would make their machines faster and cheaper and better. The applications layer wasn't the main thing. June 1st , 2020 - www.realvision.com 8 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley Now, we've moved to this world where technology is affecting everything and it's allowing people like a Mark Zuckerberg to start a company in a dorm room at Harvard. That one moved to Silicon Valley, but now, there's people that don't move anymore. Whether it's immigration restrictions, cost of living, what have you. I've been very successful in funding companies like Canva out in Perth, Australia, it started, it's there in Sydney now, but that company is now worth half a billion dollars and it's been profitable for three years, they're about 18 months behind Zoom in P&L and margin structure, and same P&L and margin structure, but size is about 18 months behind, or SafetyCulture's another company who just raised a billion in Australia. Treasure Data which SoftBank acquired, I started that one out of Tokyo. There's so many opportunities now that are springing up. The fabled Silicon Valley unicorn isn't just in Silicon Valley anymore, and there're unicorns everywhere. I think that that's just started. RAOUL PAL: What is your-- because you got involved in the whole Bitcoin business early on, talk us through your journey of that because that's-- BILL TAI: Oh, what a crazy thing that I never thought would become what it became. In the '90s, I was on a board of a company that went public called 8x8. One of our board members was the chief scientist of RealNetworks. He introduced me to a good friend of his who was the chief technologist, CTO of RealNetworks, because he thought we'd be snowboard buddies, and we did. We kitesurf together, we snowboard together. Around that time, I think around year 2000, '99 or 2000, I can't remember the exact year. His name's Philip Rosedale. Philip told me, Bill, I'm going to build that science fiction novel Snow Crash in real life. First, I hadn't read that book yet. I said, what's Snow Crash. If you don't know what it is, it's a science fiction novel by Neal Stevenson, that describes a digital world. This was written in the '80s, where the protagonist drops down his computer, opens the screen, drops in. He's got a virtual character representing him that goes around, and they have a ninja sword, the characters had ninja swords, and every once in a while, you get in a fight. If you lose, and you get your head cut off, you get timed out, and you're not in the world anymore. Towards the end of the book, the physical and virtual memory, and the character gets killed and the guy in real life dies. It's like first life and second life merge. Philip built Second Life, and it became this thing, this amazing world where people would create a digital representation of themselves and wander around in an unstructured environment. When it was first launched, people didn't really know what to do because it wasn't a structured game. You just show up. I was sitting in front of the Paragon bar in San Francisco with him around 2000, 2001 when it launched, and I said Philip, we should start an economy. I said, if you think about, what is Las Vegas, there was nothing there. Nothing's made there. It's just like a bunch of sand. I said, if you put 10 people in a circle, and you put one poker chip into the system, and said, pass it to the right a million times a year, everybody would have a million dollars a year of income. As it's moving around, you could peel stuff off and build a casino, build a resort and you have an economy. We launched- - or Philip, I should say, launched the Linden Dollar. That became-- and I took the character, my name is June 1st , 2020 - www.realvision.com 9 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley Alan Greenspan Gollum in Second Life. We had this money supply, we had universal basic income. All the netizens of Second Life would get a little stipend every month and then-- RAOUL PAL: That creates money that therefore people got distributed money and that they would spend it and create a velocity of money, and they've created an economy. BILL TAI: That's what happened, it was like Las Vegas. It was crazy because people would set up banks, there were Ponzi schemes, people would collect other people's money and offer interest with nothing really to invest in and get more money and pay interest. Everything that happened in the Wild West days of banking in the US happened in Second Life. It was just nuts. It was a fantastic experience. Then when the Bitcoin whitepaper came out, somebody sent it to me. I don't remember the date, but it sat in my in basket for a while because I didn't really know what it was. Then at some point in 2010, I read it and I went to bitcoin.org and I downloaded some software and I started running a miner. RAOUL PAL: Why? I understand you've understood the digital money. That was the big one, that the digital life and the real life can blend, and people are living two lives. Okay, I get that. That's very revolutionary and people still haven't caught up with that yet, that our kids are living now. Why in that white paper do you go, okay, this makes sense, I'm going to start mining? Most people go, oh, that's interesting-- BILL TAI: The phrase that caught my attention was peer-to-peer currency. It was more of a peer-to-peer than it was a currency at the time. Around 1999, 2000-- so back in the mid-90s, I started an ISP. I set up some routers in Taiwan at one of the first commercially-owned ISPs that became a bunch of data centers. Goldman, Morgan and Salomon ended up taking it public. I, with the team, acquired AT&T Hong Kong, and it became a company called iAsiaWorks led by then CEO of AT&T Hong Kong and it became a public company. Here I had this data center business with all these lines, and I could see clearly in my head the world was moving, had moved, from mainframes to minis to PCs to blade servers distributed around the world and it was a peer to peer fabric, effectively, of computational devices. I was experimenting at a time with peer-to-peer computing and I also set up this little entity to experiment, we've called ifrog.com and I had some coders that built a peer-to-peer content distribution network. The idea was like Akamai, to take video streams and instead of having to pay expensive bandwidth across submarine cables across the ocean, you could have a go-over once and sit in the peer nodes and each one would spread it so that would be at lower cost. I was just into that type of technology at the time and the Second Life architecture in the beginning also was going to use blade servers in a way where if you joined Second Life, your computer would be attached to a blade server in a pod and your computational device, your PC would generate a little piece of real estate in Second Life. The idea was to have many, many, many people on contributing their compute power to build the world, so that the company itself didn't have to. I think just because I was interested in those techniques and working on them and building some things and experimenting, when I saw a peer-to-peer currency, I read it. I just thought, wow, this is fascinating. This is cool. It totally made sense to me that you could have a world of June 1st , 2020 - www.realvision.com 10 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley people out there all contributing to a common goal that was a computationally based thing, whatever it was, and this just happened to be a currency. I lit up this miner and then it was computationally intensive on an old PC I had that was running some other stuff and it would crash every once in a while. In Thanksgiving weekend of 2010-- and I do all my building on holidays so if you follow me on Instagram, you'll see like, robots on fourth of like Memorial Day weekend, I built the robot and last Fourth of July, I built like a little LED red, white and blue flashing thing and I do things on holidays. In Thanksgiving of 2010, so 10 years ago, almost 10 years ago, I decided to switch from mining to possibly buying and I tweeted something that's still out there that was something like anyone else using peer-to-peer currency bitcoin.org, because I wanted to find other people. Then I ended up meeting this kid, whose father was a kite surfer. This kid named Nico Poonan [?] was mining in Finland, and his apartment was full of machines basically mining and I got to know him and bought some Bitcoin from him. Over the years, he and some other people in the open source community got together and pooled their assets and learned how to go from laptops to programming graphics cards, to programming FPGAs, field programmable gate arrays, and then they wanted to do a semiconductor chip, like a hardcore ASIC that ran the Bitcoin protocol. Having been a chip designer, my background, when he first approached me as young kid who's no education in that space. It was like, there's no way you can do this, but he and his open source buddies found some code, some programs design silicon, and they came up with a design and I looked at it, I was like, this could work. I ended up writing a check with some friends. The investor of Google Maps, some employee to Facebook, the head of infrastructure at Facebook, we funded a silicon chip that became the main computational device at Bitfury. That's how I got involved with what was for a while, the world's largest Bitcoin mining operation. RAOUL PAL: What did you see in those days? What did you think was going to happen with this Bitcoin thing? I'd love to see where you think it's going now because Bitcoin's where our worlds collide as well, because there seems to be an accelerant around us. What did you see then, and how has your evolution of thought process change? BILL TAI: Well, when I read the white paper, and then I started to understand the Byzantine Generals Problem if you've ever-- RAOUL PAL: Why don't you explain that to some people, we've had it once on before, but I think it's very useful if you explain it for some people. BILL TAI: Yeah, so at a very high level, okay-- I look at Bitcoin as primarily a store of value. It's useful in some levels of transactions, but there are improvements that need to be made to a bunch of things to make it high volume. If it's going to be a store of value like gold, then scarcity is quite important. How do you know that there's a limited quantity and how do you identify all the little pieces of Bitcoin that make up the universe of Bitcoin? There's a set of algorithms that were really based on history where if you had like a war, a bunch of Byzantine generals that were being attacked, or in some battle, and you have this June 1st , 2020 - www.realvision.com 11 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley communications, not even a grid, because you have people like running around by foot with little scrolls messaging, how do you know how to communicate with all of them in a distributed fashion and make sure that they're in sync and that the instructions that are going to each general are authentic, and that you should really follow them? An interesting problem when you're leading a troop, and you're going to go into battle against all these other people and you don't know, am I being tricked? Is this real? Is it not real? There's an algorithm that was developed that outlines the way the communication happens between those things to make sure that it's fault tolerant, and that with enough nodes, you can tell that something's authentic. The algorithm that was designed that is imputed in having a bunch of nodes that run the Bitcoin program, run them all together in a way that you can verify transactions so that if you and I have-- if you wanted to send me part of a coin, and you sent it to me, how do I know like that Byzantine messenger, that that was real, it happened. It's indelible, it wasn't fake, and that everyone can know that without having to like have watched it? That set of algorithms is coded into the software that has all these different nodes that you hear about is the hashing program and the verification of transactions that occur in the Bitcoin blockchain and that the blockchain to simplify that, it's a chain of blocks of information. Every 10 minutes or so, it's not exactly 10 minutes, but it's roughly every 10 minutes, all the little movements of coins around the world that are queued up, there's a wrapper put around that and that's a block, and then that's stuck on the chain. Over a period of time, anyone can look at that chain and see, Raoul said, Bill, this tiny amount of Bitcoin at this time on this date, and now that unit sits with him and I can then move at any time so that all of those transactions in the world all the time are being recorded and stored in multiple locations and no one can replace it, and it's indelible. There's a tracking system. It's back to this data science thing.