Kings Of Crypto: Aidan McCullen meets Jeff John Roberts

Jun 27 2022
Business Insights Crypto

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In one of the most illuminating episodes of The Innovation Show to date, Aidan McCullen met with Jeff John Roberts, author of Kings of Crypto: One Startup’s Quest to Take Cryptocurrency out of Silicon Valley and onto Wall Street.

Here, we pick out the main highlights from the transcription of their discussion on the origins of cryptocurrency and how it’s disrupting the world of high finance and changing the nature of money.

For a chance to win a copy of Kings of Crypto, simply sign up to The Innovation Show newsletter.

Aidan opened up the discussion by asking Jeff about his background, quoting from the book:

“I first encountered Bitcoin and Coinbase in 2013. I was then a reporter for the tech blog, GigaOm, where I reported on collisions between law and technology including the then novel phenomenon of cryptocurrency. On a hot July day, I set out to investigate an event called Satoshi square, which took place in a corner of New York's Union Square. Believing I would need a Bitcoin to participate, I bought a Bitcoin for $70. I intended to expense it. I'm glad I forgot. I ended up selling it half a year later for what I thought was an extremely high price of $800.”


Jeff John Roberts: The short version is I was a tech reporter. I like covering tech because tech changes the way we live. Think of iPhones and TikTok. Tech changes culture and society.

One day, I heard about Bitcoin. I was a reporter in New York City at the time and heard about something called Satoshi Square. Satoshi, of course, is the guy who founded Bitcoin. And that was the name that people had given part of Union Square Park. So I went down to check it out and report on it. I thought I'd better get a Bitcoin so I bought one for 60 bucks from Coinbase.

I thought it'd be like a flea market, but I didn't find anything for sale. What I did find was the strangest mix-up I've ever seen. There were some Wall Street traders, guys you see on TV, and they were sitting there swapping money with these underground crypto-anarchists. That just underscored to me the diversity of people that crypto attracts. There was something new there. So ever since, I've been following crypto and its various twists and turns. There’s booms and there's bubbles, but it gets bigger every year. A lot of people are like, “Oh, Bitcoin is a fad and is going to go away", but here we are 10 years later and Bitcoin is still very much here.

Aidan McCullen: It reminded me of when I was in my early teens. I used to buy records with all my pocket money. I’d go into this grungy record store and spend hours there, buy one record, and go home. But if the record went into the charts, we became disenchanted with it. We were like, “Oh, no, they've gone mainstream, they’re sellouts.’ And you'd no longer be interested.

Jeff John Roberts: That's a great analogy. It’s a bit like punk rock. There's always the thing of selling out, like when Green Day came along. Early Bitcoin was very much like that. Coinbase was reviled because it made Bitcoin too easy for people to get. Real crypto believers then, and now, said, “You know, Coinbase, that’s not your keys, not your coins. Own your own Bitcoin, own your own technology.”

So, there's this tension. That's part of what my book is about. To a degree, the Purists are right. If you really believe in decentralisation and Bitcoin, you won't use a service like Coinbase. However, if Coinbase hadn't come along, it's likely that Bitcoin would still be very small, a kind of a subculture rather than the mainstream.

Aidan McCullen: Well, I certainly wish I'd bought Bitcoin instead of records, because I'd be able to afford to buy a record label at this stage - if I’d done it back then. Speaking of purists, one of the characters that you follow closely in the book is Brian Armstrong, the founder of Coinbase. Let's tell our audience a little bit about him because he's the key character in this story.

Jeff John Roberts: Brian Armstrong is the founder of Coinbase. Still the current CEO. Frankly, he's just a nerdy guy who grew up in Silicon Valley and followed the typical path of other engineers. I think he started a tutoring company, worked at Airbnb, nothing very remarkable. And went travelling in South America.

I've heard this story from a few Bitcoin entrepreneurs. Seeing hyperinflation in South America really opened their eyes. This notion of being at the mercy of a government that recklessly prints so much money that the money you earn this week is worth half as much next week. And that's what drives a lot of these early crypto people. And some of them now too, especially in light of recent bouts of stimulus payments are like, “Hey, you know, this thing's gonna blow because the central banks are printing money like crazy. So go to Bitcoin.’ That’s what's drove a lot of these early people, including Brian - which led him to start Coinbase

Aidan McCullen: Brian was certainly a punk rocker, if you want to call him that. He was a purist. But let's talk about how Brian got into this in the first place. It was that famous white paper written by Satoshi.

Jeff John Roberts: This is a common story. I've read Satoshi's paper, too. I'm not very technical, though, and maybe not smart enough to really get it. But I thought, “Oh, that's kind of interesting.” I'd heard about Bitcoin already, though. It’s not particularly remarkable in some ways, except Satoshi was the first to figure it out. People had been working on anonymous digital money for decades. There was a group of people in the San Francisco Bay Area called cypherpunks that really liked cryptography and wanted a new type of money. But the craziest explanation for Bitcoin. I don’t know if it’s true or not, but one of the early Bitcoiners and probably one of the guys who worked with Satoshi was Hal Finney, a programmer who died of ALS years ago, but a popular explanation for the start of Bitcoin is he cryogenically froze his that when they thaw him two centuries from now, he'd have money. So when he emerged into the new world, Bitcoin will be there. It's far out; but also possibly true.

Aidan McCullen: There's a constant jeopardy that runs through the book between the law and these breakthrough currencies. We know that because we know that they've been used for nefarious reasons in the past because of their anonymity. One of the other key characters introduced in a chapter called The Outlaw Currency is Katie Haun.

In an excerpt from the book you say, “Katie Haun typed the letters FNU and LNU on the criminal file, which means “first name unknown; last name unknown”. It's how federal prosecutors referred to suspects yet to be identified. Haun was glad for the opportunity to track down this FNU/LNU - whoever he was. She was a woman brimming with energy and had arrived in San Fran in 2009 as someone streaking to the top of the legal world

Jeff John Roberts: Katie Haun recently left Andreessen Horowitz, the famous crypto venture capital firm, to start her own firm. She's now quite rich and famous on the cover of Fortune Magazine. But back then she was a prosecutor, went to law school, clerked at the US Supreme Court, and came to San Francisco to be a prosecutor at the Justice Department. However, in some of these cases, they were catching criminals with Bitcoin.

Her boss there thought there must be some sort of cartel behind Bitcoin, a Mr. Bitcoin, a money launderer for criminals. They were catching criminals with Bitcoin, so he asked Katie Haun to go prosecute Bitcoin. It’s a ridiculous idea, but that's how little law enforcement knew about it. So she opened a criminal file, first name unknown, last name unknown. To solve the case, you then figure out who it is, and you put Mr. Bitcoins name on it. But obviously, that's not how it works. And it didn't take Katie Haun long to discover that.

Aidan McCullen: You do such a brilliant job of educating us about Bitcoin and cryptocurrencies, but I don’t want to jump too far ahead without getting an explanation of Bitcoin in the first place.

Jeff John Roberts: Okay, let's step back and ask, "What is Bitcoin?" The way I explain it to most people is, it's a computer program. You have to understand blockchain technology. A blockchain is simply a computer program you run. You can download Bitcoin and run it on your computer just like Google Chrome or Microsoft Word. It's a software programme. But what's distinct about blockchains are, the software collaborates with other people on the network. You work together to maintain this ledger of transactions. Every 10 minutes or so, a new block is added to the blockchain. And in that block is a record of the transaction. For instance, if I pay you, it's all recorded in there and no one can tamper with it. No one is really in charge of it. They’re simply using an algorithm. There's a mechanism by which people agree on what the official transactions are and the block chain gets longer and longer. And the longer it gets, the stronger it gets.

Every payment is recorded in a digital wallet. Again, the wallet is just a piece of software that shows how much Bitcoin you own. And for real beginners out there, just like you can cut a $1 bill down into 100 pennies, you can cut one bitcoin down to 1/16. The smallest unit is known as a Satoshi. So if you want to go out and buy Bitcoin for $5, you can - you're just going to get a tiny little bit of it. And that'll show up in your software wallet, and will be recorded on the blockchain. Everyone will know that it’s yours until you spend it.

Aidan McCullen: For most people, this is a minefield, trying to understand, “How do I buy some coins? I need the middleman. I need somebody to make it simple.” And this was the opportunity that Coinbase and Brian Armstrong saw.

Jeff John Roberts: Exactly. I'm not particularly technically savvy either. I like reporting on it and how it changes things and especially playing with it. I don't have a natural aptitude for it. But the one concept to understand is a broader thing in cryptography - the idea of a public key and a private key.

The analogy people usually use is a mailbox. You can put your mailbox on the street and the front slot is open. Anyone can put something in that mailbox and send it to you. However, in the back of that mailbox is a private key. Only you can unlock it or else everyone could come in and reach into your mailbox and take it. That’s a bit like how a Bitcoin wallet works too. You have a public key, I can publish it here, for all of your listeners, and no one can rob me but they can send me Bitcoin. I can use it to identify myself. However, I also have a private key and that is how I get to my wallet. If anyone sees it, they could grab that and that’s how people get hacked. If you're not careful with your private key - you can get robbed.

But the catch is, holding a private key isn't an easy thing. It's a string of 64 with different characters. It's a long, unwieldy phrase. There are services that can make it easier for you to retain possession. But what Coinbase does, PayPal and what eToro does is they'll offer to take care of that for you. So rather than going through the rigmarole of controlling a public and private key, you treat it more like online banking, which is so much easier. However, the reality is who actually owns your Bitcoin is not you. You do own it, but who's in control of it is the middleman - Coinbase. And that's a very practical way to do it. But people who really believe in privacy won't let someone else control their keys.

Aidan McCullen: So Satoshi had thought of everything, including, “How do I get people? How do I incentivize them to contribute their computer in their power towards the blockchain?” And this is where miners come in, and the beautiful lottery system that Satoshi created to lure people in, and reward them for contributing their power. Take us through this.

Jeff John Roberts: It's such a clever idea. We were talking before about the blockchain. Every 10 minutes a new batch of transactions goes through the network. You might want to do that as a hobby. But, do you really want to devote the time and computer power to it? But what if you could get rich doing it? That was Satoshi's ingenious mechanism. There's competition to see who can publish the next block. There are miners, maybe one in Brazil, one in Slovakia, one in England - 1000s of them racing to do the next block. Because if you can discover the next block and add it to the chain, you get rewarded with a batch of bitcoin. Initially, you get 500 bitcoin. You can imagine what that'd be worth now. It'd be worth billions. And then every few years, it halved… 250… 125... Now it's around six, which is still a nice chunk of change. If you're the one to find the block, you get that reward.

And the way the reward is found, it's basically a really hard math problem. The only way to solve it is through trial and error. So you deploy a computer to try all these permutations. The challenge gets harder or easier, depending on how many people are on the network. If more people join, they make the problem harder. So it still takes around 10 minutes to solve. Once you discover it, you broadcast it to the network and publish it. In that block the reward is included, this payment to you, and the batch of transactions. And it continues again, and again.

In the early days, people would mine Bitcoin on their laptop or on their cell phone. It was a neat hobby. But that's when there were 1000s of people on the network. Now there's millions, so the only way to mine is to buy specialised computers. You'll see these server farms in places such as Texas that are just big warehouses full of servers, ideally drawing on solar energy - unfortunately, in some places it’s coal. And they throw massive computer power at it to solve this math problem. For some people, this is an environmental disaster. Bitcoin's defenders say “Hey, a lot of it is being mined through solar or hydro power. So what's the big deal?” A lot of it was done in China until last year - a lot of burning coal to mine bitcoin so the Chinese kicked the miners out. So a lot of them are in America now and a lot of it is green.

Aidan McCullen: You mentioned China, so I'm gonna jump ahead in the story a bit, but also connect it to some of the other shows where we’ve talked about AI and the power race to win in the game of AI, because understanding and getting ahead in AI is a power today. For example, Putin has said, “Whoever controls AI can control the world.”

China is far ahead of Europe, perhaps of the US as well. But this is a big fear when it comes to cryptocurrencies and digital currencies, because the US is highly regulated, Europe is highly regulated, apart from places like Malta, for example, which actually has opened its arms towards cryptocurrencies to give it a competitive advantage. But China is, in some ways, streets ahead of both Europe and the US.

Jeff John Roberts: Yeah, that's a good analogy. There's a race for the major new technologies of the century, including AI. I think blockchain is one of those technologies.

China has launched its digital Yuan, which is just a superior form of payment. Because still, if you want to send banking transactions back and forth, say from the US to Ireland, that'd take a couple of days, which is ridiculous. With Bitcoin, it would be done in 10 minutes. So China has leapt ahead of that, however, you probably don't want to use China's coin, because it's a privacy nightmare. It’s centralised. It's like Bitcoin run by the Chinese government. So everything you spend can be tracked. For that reason, in the US, it's not going to happen anytime soon.

But you touched on another point that people are wary of as American law enforcement has grown. It grew out of the Patriot Act after the Iraq war. America put in all these new laws to hunt down terrorist financing. But under the guise of that, a lot of people feel that it overreached and are getting into everyone's business. Other countries are getting annoyed with this. They don't really want to be under America's financial thumb. That includes America's rivals, China and Russia. If they could break the dollar as the world's reserve currency, that would help them. They would rather it was the digital yuan, or gold, or Bitcoin, because having the dollar as the reserve currency of the world lets America borrow cheap and have a lot of influence in other places, including the Swift banking system. We're seeing this in Ukraine right now. So that's why there's a push to get away from the dollar by people who are distrustful of the US or simply want more privacy.

Aidan McCullen: One of the big challenges that runs throughout the book, and we also understand this from people who are cryptocurrency millionaires, is that it can be difficult to spend it. It's hard to get it into the system, because not many stores take it. There's the famous story right back at the start of Bitcoin of somebody who bought pizza with Bitcoin. It's a bit of a myth, but I'd love you to take us through this because it explains one of the challenges with the early stages of cryptocurrencies.

Jeff John Roberts: It's a challenge for Bitcoin, especially in its early days. It’s worth money, but money is only useful if the storekeeper takes it. So in the early days, it was more theoretical. The first major example that it could actually be used to transact is a crypto developer in Florida named Laszlo. He said on the Internet that he would pay 10,000 bitcoin for two extra large Papa John pizzas, and some guy in the UK said, “Okay”, and took his bitcoin and a few hours later, the Papa John's Pizza showed up. The irony is, if he'd held on to that, it'd now be worth five or $10bn. And every year the media shows up at his house to ask what it feels like to have blown 10,000 bitcoin on pizza. But it was proof that you could use it in the real world to buy and sell things - just like with cash.

Aidan McCullen: Let's jump to another key character in the book. This time, it's another early Coinbase team member - Olaf.

“Olaf discovered Bitcoin in early 2011. And, like other things he cared about, he didn't just like it, he obsessed over it. The child of two Lutheran pastors, Olaf had been raised to live according to his conscience and explore the meaning of justice. Later during the financial carnage of the Great Recession, millions of ordinary people, including his parents, had their hard won savings wiped out while the bank executives most responsible for it received bonuses. This is common in this world of cryptocurrency and why many people think Satoshi started this in the first place. Olaf saw Bitcoin as an economic system that could not be rigged and could change the world for the better. So we wouldn't see things like the Great Recession happen ever again.”


Jeff John Roberts: Bitcoin is almost a religion. It attracts people who believe strongly in things. These days less so, but these early people. including Olaf Carlson - now a billionaire with a house in Malibu,. Back then he was just a kid in upstate New York who got into Bitcoin. Back then there was no Coinbase. You could either use a site called Local Bitcoins, where you'd meet someone in the street and give them cash and they'd use a QR code on their phone to send it to you. Or you'd go to some sketchy website and deposit money through a wire transfer, and hope it shows up in your account. The point is, now Bitcoin is easy, but back then it was almost impossible to do. He was in San Francisco, so he could always find someone to exchange Bitcoin with. But that was the passion these early Bitcoiners were driven by. Some of them were hardcore libertarians afraid of the government, some were disgusted with the banks, but they believed in it enough to give their lives to it. The point is, they believe in it so much that it’s like a religion. And these early people were the ones who built the whole thing that exists now.

Aidan McCullen: So at this stage, the business was starting to take shape. Brian, and Fred had turned their apartment into the Coinbase HQ and had secured Series A funding. Their apartment turned office started to fill with people. And after Olaf came, another key player, which was Craig Hamill, a talented engineer who had helped build the dating site OKCupid, despite the fact that he was an extreme introvert. Let's build on the story here.

Jeff John Roberts: This is a common story with startups, which is why I like covering them. And Silicon Valley as well. They’re a mix of people who'll eat ramen noodles and work 16 to 20 hours a day to build something out of nothing.

You mentioned Fred a couple times. So Brian Armstrong, the founder, after he kicked out his would-be other founder, an English fellow who hated the idea of Coinbase having control over private keys. Brian was a pragmatist, and said, “We have to do this to build Bitcoin.” They fell out over this and he kicked him out and brought in Fred instead.

Fred Ehrsam is kind of interesting. He went to Harvard Business School, and was working at Goldman Sachs in New York on Wall Street, but spent all his spare time on Reddit reading about Bitcoin. If he brought it up at Goldman Sachs, they'd say, “Oh, no, that's for computer nerds.” And so he quit and moved to Silicon Valley. And met Brian.

They started tracking the other people like Olaf, and Craig Hamill, this nerdy coder. But the point being, with a startup like this, you need believers on a mission, and these guys were just in the San Francisco apartment working around the clock. They worked and worked and worked, until one day, they raised $5 million - a lot of money. Other companies were raising like 100 million, but back then no one wanted to fund Bitcoin. It was just too dangerous - too much law enforcement risk. So they had to beg and plead and got $5 million. This wasn't long ago, I think 2014. From there on, it took off.

Aidan McCullen: Let's share a little insight into Coinbase’s culture, because Bloomberg Businessweek described Brian and Fred as vulcan bankers. They were famous for the gruelling interviews they put people through to filter only the best for Coinbase. Let's touch on this culture, because this had a dramatic effect on the type of people they brought into the business.

Jeff John Roberts: Silicon Valley startup culture can be intense. A lot of people might find it obnoxious for good reason, because these people work like maniacs and glorify that. And in the early days of Coinbase, he'd give candidates incredible brain teasers and stressful interviews, and you had to pass it. You had to tell them something interesting, something they didn't know. And solve some bizarre math problem they threw at you and had 10 minutes to solve it. That's what early Google did too. The culture was very intense and competitive and not touchy-feely at all, but that was the ethos. You sacrifice everything to build the company. In this case, a crypto company. But a lot of the tech giants started that way. That's the Silicon Valley Way.

Aidan McCullen: We know that everything is born out of struggle. This was no different for Bitcoin or cryptocurrencies. There was a bust in 2014. This was the arrest of Dread Pirate Roberts. This was the toppling of Mt. Gox. This had a dramatic impact and it was a key moment in the rise and fall and rise again, of Bitcoin and cryptocurrencies.

Jeff John Roberts: This is Bitcoin’s awkward adolescence. Mt. Gox was the biggest platform for trading bitcoin. It was based in Tokyo and this is where everyone got their bitcoin from. But then it got hacked and robbed of all the bitcoin. This caused the price of bitcoin to collapse. Obviously, the optics of that weren't good. People thought it was for criminals already, and this didn't help. A lot of people lost a lot of money, so that was an existential early threat that Bitcoin faced.

All the early crypto people played Magic: The Gathering, a popular board game. It was like a fantasy card game. And originally Mt. Gox was for trading magic cards, and then pivoted to Bitcoin. The early Bitcoin days were really colorful. Do you want to talk about the Silk Road?

Aidan McCullen: The Silk Road is such an important aspect of this, because it highlights the anonymity behind cryptocurrencies - you can’t track people, they can be used for nefarious reasons, and they've been used for that. And still are. This is one of the reasons they have a bad name around cryptocurrencies. And in the early days, nobody would go near them.

Jeff John Roberts: Some time has passed, so maybe some of your listeners aren't familiar with the Silk Road. But it was this online bazaar. There are sites like it today. But this was the first and earliest one where you could buy anything: you could buy drugs, you could buy weapons. It was this giant free-for-all of illegal services. The guy behind it was Ross Ulbricht. He’s doing life in federal prison right now. He was a very smart guy, though, and went by the name Dread Pirate Roberts when he operated the site. There's a very good book called American Kingpin by Nick Bilton, which tells his story. He mentions that he couldn't have built this, but for three technologies that came online about 15 years ago. One of them was mass cloud computing storage, being able to use cheap computing. The other one was Tor, the system for browsing. But the final one was, how do you pay people? Bitcoin. So that's what helped it happen.

Bitcoiners are very sensitive, saying, “Why do you call him a criminal?” Today the reality is, most people who use Bitcoin are not criminals. Drug cartels use $100 bills and Apple gift cards to move their profits, and some people use Bitcoin, but in the early days, the percentage of Bitcoin users who were criminals was, frankly, pretty high.

Aidan McCullen: A lot of hacking goes on Jeff, as you know, and cover in the book. Many people have had their keys stolen, they've had their code stolen, they've had their accounts hacked, etc.. So that's one side of the coin, excuse the pun. The other side is what about the people who have coin and want to extract it to buy things? They have often found creative ways, let's call it that, to do so and get their money out, to be able to buy things in the open market.

Jeff John Roberts: That’s a big challenge in that Bitcoin, you can move it around, you can move it to other coins, move it back and forth. But the blockchain is visible, they can see transactions moving back and forth. They don't know who controls the wallet. But if you're not careful, and this is how they usually get tripped up, at some point, you 've got to cash out. So you touch a conventional banking system where you run into things such as anti-money laundering laws, know your customer laws and things like that. Typically, that’s how they get caught.

There was recently this couple in New York - this Russian guy and his American wife. They had a big hack worth something like $4 billion and it found that they had the keys. They were money laundering for some Russians. And they grabbed them. But they tripped up because the guy recycled the same email address at some point somewhere. And one of the online law enforcement detectives found it. That's how people typically get caught. If you stay in Bitcoin, you're safe. But as soon as you try to move it into regular money, that's when they're really watching you. But in terms of other scams, it's if you get someone's private key, or simply hack the exchange. That's happened to almost every exchange. If you can get in there, you can start moving bitcoin out, because it's just a piece of software. It's easier than robbing a bank. And then, of course, you know, Bitcoin sites themselves operate as scams: They simply vanish with your bitcoin and your money. And that's just been part of crypto since day one, because it attracts libertarians, idealists and criminals.

Aidan McCullen: One of the really interesting ones was people using their business account to pay for lunch for their wife or family, etc. But some of the creative expensing that went on with cryptocurrencies was really interesting. There's a great one that you share in the book.

Jeff John Roberts: Needless to say, the tax man finally got interested. But what some shady companies were doing was buying a bitcoin and writing it off like it was a computer because it's technology. It'd be like buying gold bars and then declaring them as a tax deduction. So that brings us to today where the tax authorities are interested because there's so much money there. Now they're hunting it down, but in the early days, it was a lot looser, and people would try and get away with stuff like that.

Aidan McCullen: We’ve gone through many peaks and troughs in Bitcoin at this stage. But even more important than Bitcoin’s bounceback at this stage was the appearance of a new digital currency called Ethereum. The idea for Ethereum had been set out in a Satoshi-like white paper in late 2013, Ethereum enjoyed a special advantage over Bitcoin - it had an acknowledged leader in the form of its creator, who'd become the most famous figure in cryptocurrency after Satoshi - enter Vitalik

Jeff John Roberts: If you know even just a little bit about crypto, you've definitely heard of Bitcoin. But the other one you've probably heard about is Ethereum. This is the other major blockchain. It's not worth quite as much, but a lot of people think it will eclipse Bitcoin pretty soon. The thing about Bitcoin, it's limited. Bitcoin is really good for recording cash transactions, if you want, you can actually inscribe messages in there. The first Bitcoin block has got a message from The Times of London, but it's not really built to do things. It's just built for moving money back and forth.

Ethereum is built to basically be a computer program that you can do anything with. You can do something called smart contracts. You can do business deals on it. It's a lot more sophisticated and versatile. And the programming language is easier to use. I'm not saying one's better than the other. They're both cool pieces of software, but Ethereum really changed the game. It lets anyone run programs on it too. But the other thing Ethereum can do is you can launch other blockchains on it, and issue your own coins, and basically start your own Bitcoin on top of Ethereum. And hundreds of people have.

Aidan McCullen: I loved your analogy of Ethereum as an amusement park. This really helps us grasp the concept of what it offers and how it works.

Jeff John Roberts: You pay Ethereum to get into the amusement park. And in this amusement park, there's a lot of rides that you can go on. But they all require a little bit of Ethereum to get on. You have to buy a special ticket for each ride. In the same way, Ethereum is a platform for a lot of these other crypto activities. What happened in the boom of 2016/2017 is everyone rushed in and said, “I'm going to build a ride. Give me some Ethereum now and next year, my ride will be finished and I will give you free tokens to ride on the ride.”

But what happened was the financial incentives got a bit skewed because a lot of these new companies would raise like, $100 million worth of Ethereum. And now you've got these 23-year-old coders with 200 million in the bank who are promising to finish this brand new ride for you to get on. But some went, “Hey, I can buy a private jet now”, so a lot of them ended up just fiddling around, not doing what they said and some were just outright scams.

Aidan McCullen: There’s a great quote by Bill Gates, he says: “Be nice to nerds. Chances are, you'll end up working for one.” That was certainly the case for Bill Gates creating Microsoft. But this is also a trait that you see in a lot of these creators. Vitalik came from a background where he had a very abnormal, if you call it that, upbringing. He wasn't into normal things. He was wired differently. And you can see how that's such a benefit in the world today to think differently.

Jeff John Roberts: It certainly did. Vitalik is the nerd who wins later. It’s a common story now. But the interesting thing is you think of Bill Gates as a nerd and that no one actually really liked him or Mark Zuckerberg. And now these guys are like, “You were mean to me once now I'm going to mean to all of you.”

But Vitalik is a special individual. He is like a genius. He speaks English, Russian, Chinese, and his favourite toy when he was four years old was Microsoft Excel. He’s brilliant. But the interesting thing about him is that he's a deeply human person. His parents were Russian dissidents who raised him in Toronto. And I think even in the current conflict with Ukraine, even though he's ethnically Russian, he's come out and spoken up for Ukraine. He's got this deep humanity to him, because a lot of crypto founders and tech founders can be nasty. They remember the slights they experienced in high school. And now they're out to make up for it by buying the biggest car or throwing their money around. Vitalik likes wearing unicorn shirts and coding. He’s weird, but he doesn't have that meanness that a lot of these people who get rich later acquire.

Aidan McCullen: I didn't want to get too technical, but one of the concepts that's useful to understand is hard forks. And hard forks were something that happened both in Ethereum and in blockchains in general. Perhaps you will take us through this.

Jeff John Roberts: This is a technical thing, but it's critical to the issue of Ethereum and other blockchains. Because the story is you can't tamper with the blockchain, it's immutable. But what happened with early Ethereum is there was a project on it called the DAO, which was this decentralised investment club, where people put in maybe a couple of million dollars, and it was supposed to be invested on the rules of the code. The code is law. However, someone promptly found a bug in the code for this project, and robbed most of the money. And this was an existential threat to early Ethereum. So the big question was, should Vitalik rewrite the blockchain, go back in time, and erase it and have it go in another direction? That's why they call it a hard fork, because blockchain is built in blocks, one block at a time. But if you suddenly made it take a sharp 90 degree turn and build in a different direction, wiping out some of the blocks that had come before, that's kind of a cardinal sin, but Ethereum did this. I don't think they could or would do it now. But they could get a critical mass to agree to change the underlying computer code, to rewrite the blockchain and sort of rewrite the founding myth and the history, which a lot of crypto people regard as heresy and dangerous. But in early Ethereum, these were the options. Otherwise, hackers are going to run away with hundreds of millions of dollars from Ethereum investors.

There are two books out on it now. Crypto has gotten so specialised, but there's two books just on Ethereum. I think one is called Into the Ether and there's literally hundreds of pages on this hard fork thing. But you know, it's a bit more technical for what we're doing here.

Aidan McCullen: At this stage, Coinbase is a different company. It's no longer a startup. It's no longer in the founder's apartment. It starts to take off.

Jeff John Roberts: Coinbase isn't that different from Apple or Facebook, or any company that started as a startup, and then. suddenly, it gets really big, which is what Coinbase did. They built a professional service for professional traders, and they're seeing these people out there, who spend all their day trading oil, trading gold, trading wheat, but now they're trading Bitcoin. They’re slinging million dollar transactions back and forth. Coinbase built a layer to help cater to them. And this is where we get into the weeds of finance, but there's a lot of hedge funds and people that have a lot of money to invest in this kind of turbocharged crypto environment and this let Bitcoin go from a private hobbyist thing for individuals, to mainstream finance. And that's where I say in the book, that it’s like Silicon Valley coming to Wall Street. All these Wall Street bankers are looking at Bitcoin saying, “This is cool. This is the future, the technology is better. There's so much money here.”

So a lot of the big Wall Street firms took an interest and a lot of people simply left and started Bitcoin funds instead. And that was a tipping point. Bitcoin is now more than a trillion dollar market cap. It's enormous, the size of Walmart or something. And that's the big change. It got turbocharged by the Wall Street crowd coming in.

Aidan McCullen: There was a really interesting part in the story that'll make sense to some of our listeners. They’ll understand because it happens a lot in corporations, where an innovator is seconded to an innovation lab and meets startups, etc. And then gets poached by the startups, or goes native. This happened to Katie Haun, as well. She deeply researched the world of cryptocurrencies. And then jumped fence and actually became a great leader in this world.

Jeff John Roberts: Yeah. Katie Haun was the former Supreme Court Clerk and Justice Department prosecutor told to investigate Bitcoin. And she started investing in Coinbase. The more she learned, she realised these guys weren't criminals. They were nerds. And she got the crypto bug herself, and eventually quit a government job and ended up sitting on the board of Coinbase. She is now a massive crypto investor

Aidan McCullen: I mentioned Katie Haun firstly to show our audience where she is at this stage in the story, but also to shine a light on what's happening from a governmental perspective. Because at this stage, Congress doesn't really know what to do. They don't know how to treat this. They can't tax it. How do they rein it in, because it's anonymous, etc? One of the reasons I say that is, when we look back in the rear view mirror on this whole innovation in the world. The choices we make today, the regulations we put in place, will either hamper or accelerate progress. And some governments are turning their backs on digital currencies. Others are embracing it warmly. I just wanted to share your thoughts on where it is at this stage, but also where it's all going in the future.

Jeff John Roberts: This is the big story right now, regarding what governments should do. For a long time, they just ignored it or said, “Oh, that's just for criminals”, and the FBI would look into it a bit. But now it's becoming so big, Bitcoin and crypto is starting to challenge the dollar as a mainstream payment form. And they also want the tax revenue from it. People used to hide their money in Swiss bank accounts and now they’re hiding it in crypto. And the government wants their cut.

We’re also seeing things like ransomware. The ransomware epidemic of the last few years was driven by crypto. That's caused governments and law enforcement to take a really hard look at it. And now we're at this critical juncture. Here in the US, the senior Democratic party has been quite hostile to it, regarding it as a scam or dangerous or a crime. But an interesting thing is happening within the younger generation. So many people own crypto and use it that they see it as a way for financial inclusion. In the US too, there's a big income inequality problem. In poor parts of the US where you can't find a grocery store, you can't find a bank, because the banks don't want to serve low income communities. So a lot of them are turning to crypto, or for sending money overseas. A lot of people want to send money home. Filipinos or Mexicans that work in the states want to send remittances home worth the 10s of billions of dollars, but Western Union takes a big cut of it, 6% or whatever, so it's not cheap. But, crypto can be almost free. That's what Coinbase is actually experimenting with right now.

So there are all these potential benefits from crypto, if they just get the law right, but the fear is, they're simply going to crack down on it and treat it as a criminal enterprise, and a lot of us are going to flee to Asia, or elsewhere. Because you're never going to kill it. But you can harm the innovation.

Last point I'll make, and this was a dilemma in the early days of the Internet too. Remember the first internet bubble? And it seemed like all this opportunity, all these things you could do. But a lot of people were, “Wait a minute, the Internet's for crime. Look at all this pornography. Who are these anonymous people? How dare they.” So there’s a move to try to shut down the internet because it's for crime. But, at the time, the US government wrote a couple of very enlightened laws to basically encourage the Internet to develop in the US although reining in some of the worst parts of it, but preserving the innovation and keeping it in Silicon Valley.

Because this meant a huge boon to the US - all of the big tech companies are here. Point being, crypto, like the internet, isn’t gonna go away. You can't put it back in the box. The best you can do is try to develop policies to let it flourish on your soil. If you do it badly, you'll drive it away, and someone else will reap the benefit of all that innovation. So that's where we are in the US right now. A lot of younger people are coming around, including politicians.

Aidan McCullen: One of the reasons I wanted to share your views on regulation there and how Congress reacted is because innovation doesn't stop, change doesn't stop. It can be held back for a little while, but, like a dam, it will eventually burst through. And there's a quote here in the book that will explain what happens next:

“As Congress dithered, one of the most outrageous financial bubbles in modern history was swelling faster than a new celebrity's ego. Every day in 2017, someone on the Internet announced a new token project. And every day people raced to buy those tokens. Never in history has there been an easier way to raise more money, from more people, with such little effort. The number and size of the ICOs defied logic. Staggering sums changed hands every day.”


This was an event many of us in this world remember, but it also sullied cryptocurrencies. It poisoned the well, so that we thought all the water was spoiled. But unfortunately, this happened. And I'd love you to share this because this had a dramatic effect on the rise of cryptocurrencies and probably put the brakes on a little bit from a governmental perspective, and a warning shot across the bows for many governments.

Jeff John Roberts: People who had been building real crypto projects, this set them back because 2016 was the year of more scams. And this came about, because people saw Ethereum and went, “Hey, look how much money they raised? These guys are rich, let's do it too.’

There was one called DentistCoin, there was one called SpankChain for porn, which actually might still be here. But the idea was, “Hey, send me all this money. We’re going to build this project, and then I'll give you tokens and you'll be rich after.”

But there's a thing called securities laws where if I want to go and raise money from the public, sell shares in my company and advertise on the internet, I better register with the SEC, or whoever the securities regulators are in your country. And these things are regulated for good reason. It stops scammers from ripping people off. Scammers will find a way to rip people off no matter what, but with the crypto thing, it was so easy. Just put a white paper up, pretend Vitalik is on your board, put his face on it, and say, "send Ethereum to this address," then we're going to build this and voila, you got $50 million worth of Ethereum. And then you simply say, “Oh, yeah, I'll build the project later.” But simply take off - some are just blatant scams. Some people were well intentioned, but got lazy, but it made all of crypto look a little dirty. Then people got more and more greedy, something new would come out such as Ripple or XRP, and people just rushed into it hoping to get rich. And that’s their fault. If something looks too good to be true, it probably is. But all this mania didn't make the industry look good. It made the regulators come in with a tonne of bricks after that. And in popular culture, to this day, it makes a lot of people think crypto is just one big scam.

Aidan McCullen: To help people recall what was going on because the crypto media didn't like what was going on, I'm going to pull an excerpt to explain what was happening at this  point in time:

"The Crypto media called this flood of new currencies altcoins, as an alternative to Bitcoin. Long time Bitcoin believers had their own name for these tokens. They didn't call them Bitcoins; they called them Shitcoins. Critics claimed the new tokens were spun up on shaky technology, and then flogged in fly-by-night marketing schemes."


And this was the context into which many people dismissed it. They seen it as a scam, sold by snake oil salesmen and women. And it sullied the water."

Jeff John Roberts: I think so, but again, let's go back to the early internet. There was Initial Public Offerings left and right. Everyone's investing in Internet stocks. And 90% of these companies blew away. Some were scams and aren't here anymore. The 2016 ICO bubble - same sort of phenomenon - except on a bigger and more egregious scale, but some of these projects were legit, and today some are actually kind of doing well. A lot was learned and a lot of money was raised. It's just the cycle of business and money. And you mentioned this quote - the tulip bulbs. That's Jamie Dimon, he's the CEO of the bank, JPMorgan, probably the most important banking CEO and he was right to decry the scams, but I think there's something else going on in that crypto is a fundamental threat to big banks. It’s superior technology to move money around. So the banks don't have an interest in crypto succeeding. So you're seeing them work the regulators to shut it down. But meanwhile, a lot of their own employees are leaving to start crypto companies.

Aidan McCullen: So we're moving on in time here. It's 2017. And an interesting thing happens here. In 2017, Lamborghini posted more than a 10% year over year increase in sales. A final dose of fuel for the crypto craze came with the launch of a spin-off that some of us have heard of but don't really know what it means. Which was a spinoff from Bitcoin called Bitcoin Cash. 

Jeff John Roberts: This was just such a fun thing. Crypto is so colourful, and there's all these colourful things, such as Bitcoin pizza day. I don't know much about cars. I don't know why Lamborghinis are the thing. But people say when you shift crypto that means you have enough money to buy a Lamborghini. By 2017, a lot of people had made enough money, so you'd see Lamborghinis driven by 20 year olds all over the streets in New York or Miami.

But, in terms of Bitcoin Cash, it’s not quite a scam, but they forked the Bitcoin blockchain and said, “This is another version of Bitcoin that's better.” But there was just so much money at stake. But people went, “Oh, bitcoin cash sounds like Bitcoin, let's put my money in that.” The greed is out there. And so all these competing, fake and knock-off chains started, such as Bitcoin cash.

Aidan McCullen: You mentioned a phenomenon that is so typical of innovation, which is the arrogance of success, or the complacency that success gives you. And in my own book, I often say that we're defeated by our victories. This certainly happens in sport: the more success you have, the more complacent you become and, suddenly a team comes along that's less in ability but beats you. Because you're complacent. This happened in Coinbase, as well. They let in the alternative coins. They let in the Winklevoss brothers, who were depicted as idiots in the movie The Social Network, but it's far from the reality. Maybe you’ll give us a flavour of what's going on at this stage.

Jeff John Roberts: Here we're getting into classic innovation dilemmas. You're the first innovator and you're up front. How do you keep your leads without getting someone eating your lunch and out-innovating you? That's what happened to Coinbase when they got complacent. In the early days, they were the crypto company. But then something more kind of scrappy and freewheeling sprung up in Malta, called Binance. The guy who runs it, CZ, in the States, is a brilliant entrepreneur who's willing to bend a lot of rules and he just hopscotches round to whatever legal jurisdiction is going to give him the best terms.

He started offering a lot of the newer coins. Once upon a time, there's one coin - Bitcoin and then there's a few like Bitcoin. Litecoin, Ethereum... And now there's like hundreds of them. A lot of them are dumb, but a lot of them are real things people want. And Coinbase was slow to adapt to that, because they're complacent and got bureaucratic with innovation and tech. But crypto moves even faster than tech. And Brian Armstrong has told me that this is what he fears most. Someone or thing he doesn't know is going to come out and be more innovative than him. And that's what happened with Binance and they started eating Coinbase’s lunch. Coinbase could pivot and catch up again. But crypto is no different than other highly innovative industries. You might be on top one day, but you have to fight like hell to stay there. Or someone's going to lap you very quickly.

Aidan McCullen: Do you see it when you're covering startups? Where a VC company decides, “You know, what, these two founders need a bit of manners here. We need them to grow up a little bit. Maybe we need to put in a head of people, a VP of culture, whatever to start to shape the company a little bit more.” This is what happens in Coinbase. At this time, some of the original heads leave and the company starts to dissolve. Again, a common phenomenon that happens in startups. But then, in comes this player, Balaji, and causes an absolute ruckus. But he actually helped the organisation in a way. Yes, he pushed people out and demoralised them. But left an indelible mark on the organisation.

Jeff John Roberts: In terms of corporate or startup infighting, this is really something, but to Brian Armstrong's credit, he brought in Belaji. Half the people I've met call him a psychopath, but they also call him a genius. And to Brian Armstrong’s credit, it was a good move to bring in someone like that to shake up your company, because they had gotten bureaucratic and slow. So they brought this guy in, who launched a lot more cryptocurrencies, but he was a ferocious political fighter and drove people out, made people quit. But, in the end, he introduced that hunger and innovation into Coinbase again, and then a year later Belaji quit and started something else.

You're going to find too as startups get bigger is that the other founder employees are often people who are really passionate too. But then the company gets too small for them, because they're playing second fiddle, so they leave. That's what happened. Coinbase Brian's founding partners left, mostly on good terms. But suddenly, the people you built with company with aren't there. Your company's bigger, and then you start getting these corporate people looking for jobs who don't share the same founding mission. At start-up, it works, because people are sharing the same vision. I won't call them opportunists, but it's basically people looking for a desk job. And that's what you're stuck with. You’re bigger, and how do you change the culture? How do you preserve innovation? It's a big challenge and in Coinbase’s case, they rolled the dice by bringing in Belaji who basically smashed all the furniture, but for their own good. In the long run, it helped them recover.

Aidan McCullen: We’re in 2019, and stablecoins are starting to emerge. Stablecoins start from the position of, “Actually, let's be friendly with regulation and the law and let's be stable.”

And this is where the Winklevoss twins come to prominence in the game. But it's at the same time in 2019 that Facebook is becoming Meta and they dropped the bombshell that it was time to launch their own currency. They announced Libra.

Jeff John Roberts: This was a big deal. Facebook wanted to get into crypto, and stablecoin is basically like Bitcoin: it's an online piece of currency. But, typically, it's pegged to the dollar, the euro, or the pound. But it's crypto, backed by a reserve of real dollars, which means you get all the advantages of crypto. It’s faster, more efficient, it can go anywhere, but without the hyper-volatility. And at this big moment, Facebook, says, “Hey, this is a killer technology”, which it is, “and we're going to introduce our own.” And they wanted to have it set up so that basically every Facebook user, which of course owns WhatsApp and Instagram, all those users would suddenly have a crypto wallet with Facebook's money in it.

It was actually a very good idea on Facebook's part, but the government freaked out because Facebook is already in enough trouble because they seem to do horrible things every week. And as one lawyer put it to me, the only thing more threatening Facebook could have done would be raising its own army. This is basically taking over the power of the purse from like the crown. So the regulators stop them. But I think we're gonna see other companies do the same thing. It's a matter of time until Apple tries it, or Amazon tries it, just because crypto is such a superior payment method. I think stablecoins are going to be a big part of it. Everyone's going to have a wallet with some stablecoins in it.

Aidan McCullen: When I started my own journey, trying to understand innovation a decade ago, and eventually came across cryptocurrencies, the way I understood them was they replaced the lack of trust that comes when you become more distant and don't know the other party who's buying something from you. So the story I always had in my head was the show, Little House On the Prairie, where you could buy from the local shop, and the local shopkeeper knew who you were. If you didn't pay your bills, he'd badmouth you to the whole town, and your name would be dirt, and then you could go on to the next town. And it wasn't that far away, and you couldn't travel so far. So word would follow you. And you couldn't be this vagrant that went from town to town.

But as the world became more global, that wasn't the case. We could buy from people on the other side of the planet and not know who they are. Of course, you could get ripped off. And blockchain and this whole technology offers a trust protocol. And when I think about the organisations who are playing towards that, Amazon is one. That's why they have invested so much in pleasing customers. So the customer trusts that they'll get their product. And if they don't, Amazon will step in as the intermediary and refund you your money. Then I thought the same for Apple because Apple is increasingly making more plays towards becoming a bank. Because they understand the movement of somebody's everything. They have all their content. And it's one of the reasons Google Wallet failed. Google Wallet wanted access to banking details and data, but Apple has just bought a business that does this. And it's starting to look like they're putting the right  pieces in place, to become a player. That will be an absolute game changer for this already $2 trillion business.

Jeff John Roberts: Technology, as we keep saying, doesn't go away. You can't put it back in the bottle. Cryptos are with us, and are getting bigger every day. There’ll be booms and busts. Right now, everyone’s talking about NFTs. Those again are a type of crypto that people want to make into basically, membership passes. If you want to support your favourite band, go to a virtual event, or go to a real world event, in some places, you now need NFTs, and Coinbase is in the middle of that. It's so messy right now, but that's what makes it interesting.

The parable of the elephant is a good one. That's where these three blind scientists are trying to figure out what this elephant is. One guy is touching the tip of the tail. And one is touching the leg, one guy's touching the trunk. And they all consider together what it is. They're right about the different parts, but no one's clear how it all fits together. That's where we are with crypto right now, in that something's coming, something's happening, and it's messy. And it's hard to use, but you know, it's approaching rapidly. I think Coinbase will be at the centre of it, but then one day someone's going to depose Coinbase, because they're gonna be faster, more innovative, more hungry, and build a better product. That's just the sort of story of innovation and technology.

Aidan McCullen: Jeff, what a beautiful way to finish today's show. And I have a quote that I love to pull that explains the spirit of this book and the spirit of this change that we're going through in society:

"The hardest part you tell us about getting a new network effect based technology is the start. And crypto seems to have overcome that initial inertia. The next 20 years, much like the Internet is likely to awe us in ways none of us can predict."


Author of Kings of Crypto: One Startup's Quest to take Cryptocurrency out of Silicon Valley and onto Wall Street, Jeff John Roberts, thank you for joining us.

Aidan McCullen: Don't forget, the book is Kings of Crypto. You can win a copy by signing up to The Innovation Show. I want to thank our sponsors, Zai, boldly transforming the future of financial services with a suite of embedded finance products and services, empowering businesses to manage multiple payment workflows and move funds with ease. Check them out at

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