Chris Burniske on The Ethics of Investing in Tokens

Audio interview transcription — WBD090

Note: the following is a transcription of my interview with Chris Burniske, a partner at Placeholder. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

You can subscribe to the podcast and listen to all episodes here.

In this episode, I talk with Chris Burniske, a partner at Placeholder and the author of Cryptoassets. We discuss why Chris believes in a market for tokens, the ethics value extraction, the evolution of equity deals and the pressure from maximalists.

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Interview Transcription

Interview Date: Monday 25th March, 2019

“If we are trying to take Bitcoin mainstream, that means the vast majority of users will not be educated about the merits of Bitcoin, they just won’t care, they will actually be turned away if they feel like they have this screaming mob asking why the hell they are using this other asset.”

— Chris Burniske

Peter McCormack: So the interview we’re doing is pretty timely as well because we chatted a bit over email. It’s been a long time coming and I’ve obviously read your book. I’ve read it I think three times now. I’ve got it here with me. Wondering what we were going to talk about and your first point was that you’re bullish on Bitcoin. I’ve had quite the three weeks on Twitter, I don’t know how much you’ve seen of it, but I’ve been at the wrath of the maximalists!

Chris Burniske: Uh-oh. It happens to almost everyone.

Peter McCormack: Yes. My problem is I’m very defensive and I feel like I need to defend each point, which I’m learning not to do, really I should mute and have a break. So I’m going to have a break for a while now, but I switched between sympathizing and almost agreeing entirely with maximalists, but then have this other curiosity. Now because of what’s happened this week, if people know I’m interviewing you, they are aware of your book, your book will be considered as part of the threat model to Bitcoin. You must be aware of that. You’ve had plenty of…

Chris Burniske: I’ve been at the wrath of the maximalists many times. You’ve seen it on Twitter.

Peter McCormack: I’ve seen it. So I’m going to approach this with some healthy scepticism…

Chris Burniske: As you should!

Peter McCormack: As I should, and curiosity. I think, firstly just to set the scene, it would be great if you explained who Placeholder are, what you’re invested in, what your investment strategy is, and then we can go from there.

Chris Burniske: Sure. I do want to come back to Bitcoin and hopefully teasing apart how Bitcoin is not synonymous with the maximalist. There are many flavours of communities that support Bitcoin and believe in Bitcoin and Placeholder is definitely one of those. So a little bit about Placeholder, back half of 2017, myself, Joel Monegro and Brad Burnham raised $150 million venture fund. At the time, there were predominantly hedge funds, but we chose a venture fund model where the capital is committed over a 10 year period. So there are no redemptions and we’re not subject to the whims of the market in the amount of capital that we have to deploy.

So it really creates this cocoon of capital where we can focus on supporting our portfolio teams with a really long time horizon. So a 10-year fund is really the timescale that we’re thinking on. We raised the fund with a focus on the progression of say, value accrual within information technology, going from hardware to software to data to governance, which is something we can circle back to if you’d like. That thesis remains, we continue to layer in things. Definitely had an early focus on developers. Starting early 2018 started to compliment that focus with what has now say blossomed into the decentralized finance community.

Really with the realization that okay, financial services tend to be one of the earliest adopters of new technology. Blockchains are natively financial technologies in that they collapse the cost of asset creation, custody and transfer and that we have to nail those use cases, say within financial verticals to really open up, say more of the technology verticals. So that’s where we’ve made investments in things like 0x or Maker Dao and Erasure which was recently announced.

All of our investments are on our website, placeholder.vc. So just reading them from the top, it would be 0x, Aragon, Bitcoin, CacheCash which is a content delivery network, Decred, Erasure, Filecoin, FOAM, Maker Dao, Open Source Coin which has recently had some buzz around it, it’s a decentralized GitHub, UMA universal market access and financial contracts. Then ZeppelinOS.

Peter McCormack: Okay. Obviously, you wrote the book. What was it two, three years ago?

Chris Burniske: Started writing it the end of 2016 and published it September of 2017.

Peter McCormack: So it was the first thing I read in the sector and the first time I read it under the belief that everything in it was true. Some of it went over my head, but it was a very good intro into the crypto world. I’m less of a crypto investor now. I hold Bitcoin and Monero. I have curiosity elsewhere, but quite a lot of scepticism. But you pretty much put yourself out there into the arena to produce this book and it’s been highly commended but also highly criticized. So we’re a good two to three years on from when you started it. How do you reflect on the book now?

Chris Burniske: I think it’s important to go back to what the period was like when we wrote the book because I met Jack, my co-author, at Consensus 2016. I had recently published a few months prior, a white paper with Coinbase called “Bitcoin: Ringing the bell for a new asset class”, which by and large the maximalists loved.

But I had written that paper really to argue that okay, Bitcoin is extremely important and if you’re not paying attention to Bitcoin, you’re missing the boat. But Bitcoin is also an early indication of what’s to come. That had a strong reception within the financial and tech communities. When I met Jack, I met him randomly, he sat down next to me at lunch at consensus and we were talking. He had been a writer and is a writer for different news outlets. He pitched me on the idea of doing a book and I thought it was a joke at first and then it actually started to materialize and become something real.

At that point in time, you had say books about Bitcoin. One of my favourite books that I read, when I was ramping in the space, was “Understanding Bitcoin” by Pedro Franco. Innocuous title, but very in depth on the economics and cryptography and of course there’s Andreas’ books. But you had books on the technicals or you had books on the history, things like digital gold. But at the time we didn’t have a book that covered the asset class as a whole that said, “hey, Bitcoin is the first of its kind, but they’re going to be many more and what is a potential framework for approaching what’s going on here?”

So this was really an attempt to take us beyond thinking of this new asset class as relegated to currencies alone, but instead recognizing, okay, we have a natively financial technology as we went over, which collapses the cost of asset custody, creation and transfer. So that is going to open up this entire world of programmable value. How do we prepare ourselves for that as investors? So that was really the genesis of the book. Got the book deal late in 2016, wrote it over a period of four months. It was an aggressive timeline and had to submit the rough draft end of March.

But March 10th 2017 is when the Winklevoss ETF was rejected that Friday. That’s when Ether popped like 20%, and then all of the other crypto assets started rallying. That really kicked off and we can circle back to that. But that kicked off the heat of the 2017 bull market and so everything started changing before our eyes as we were writing the book. I actually became horribly insecure about the book before publishing and feeling that it was incomplete. My insecurities are something else entirely! But I think it was, for its time, a good first attempt. We may do a second edition. I may do a totally separate book, but now it feels a little outdated, but I think still relevant.

Peter McCormack: Well it felt to me more like a prediction of the future. What could be, rather than a statement of fact?

Chris Burniske: Yes and I never want to say, this is exactly what the future’s going to look like because anyone who tells you they know exactly what the future’s going to look like is lying. We can’t possibly know.

Peter McCormack: Are there any parts of the book now that you on reflection think are wrong or areas you’ve explored that stand out to you, that you really do want to rewrite?

Chris Burniske: When we wrote the ICO section, there’s one chapter, “The Wild West of ICOs”. I think that could have been a book in itself. Given how fast things were evolving, I think we could’ve done a more robust job with that section. Someone on Twitter has called out that we should have covered the risks more. We did have two chapters on the history of financial bubbles and weaving in examples of crypto bubbles and trying to prepare investors for all the different potential schemes that they may encounter. So really did our best to discuss the risks in the book, but I think could have done more.

There’s just a very specific thing. I got ported in late 2016 where they moved my phone number and then broke into my email and everything waterfalled from there. I wish I had put in a section about protecting proper security hygiene with two-factor authentication. So there’s all kinds of things, but now the debate because I do feel that urge to embark on another book. It’s like writing a book is giving intellectual birth and then there’s a period of exhaustion and I feel like I’m recovering from that.

So a book is pinging around in my mind and I think the question is whether to do a second edition of this or to do something completely new. The thing that pulls me towards doing something completely new is just exploring new things. My Dad used to say all creativity comes at the cost of maintenance and I don’t like the idea of maintaining this book and it becoming this dry exercise. I much prefer the idea of intellectual exploration in writing a new book. It may be less refined, but it’s a journey that the reader takes with me and we all know that we’re figuring out the space together.

Peter McCormack: Okay. So just back to the fund, what is the split between equity and token based investments?

Chris Burniske: Thus far, every single investment we’ve made has been with an eye on the eventual crypto asset, not with an eye on the cashflow extracting equity capitalized business. That said, we have made investments in equities, LLCs or whatever it may be. But we think of those as a Placeholder development company. Where actually pre network launch, it can align investors with the developers most cohesively to raise in an equity structure and then actually dissolve that structure or there are different ways to handle it upon network launch, to get the eventual claim on the tokens.

Peter McCormack: So you are also bullish on Bitcoin?

Chris Burniske: Yes, absolutely. We hold Bitcoin. We have a large amount of Bitcoin in the portfolio.

Peter McCormack: Are you able to say what level investment you’ve made in Bitcoin or do you have to keep those, is that confidential?

Chris Burniske: It is one of our largest investments.

Peter McCormack: So let’s talk about Bitcoin first. Then I want to talk about tokens and I want to talk about the way a fund invests in tokens and the way it extracts value and whether there is value. Because I have got some scepticism. I don’t hold any anymore now because of that. I am curious.

Chris Burniske: Skepticism is healthy.

Peter McCormack: Yeah, for a number of reasons, but we’ll come to that. So let’s go to Bitcoin itself. I like to ask people in almost every interview now this same question. I’m always intrigued by the answer. It changes every time. But what is Bitcoin?

Chris Burniske: I think the easiest way to describe Bitcoin is; money over an Internet protocol. Just as voice over internet protocol, things like Skype and WhatsApp calls have revolutionized our ability to connect with anyone anywhere in the world for zero cost, Bitcoin as a money over Internet protocol, rips out all of the pre-existing sludge of our financial system, the interconnects and all of the things that take up time and cost. It just says, here’s this global network for communicating or transmitting value at low cost.

Peter McCormack: Okay, interesting. So I’ve heard that before actually and people talk about it as Internet money, but I sometimes struggle with that because I would argue that a stable coin is better money over the internet because it’s closer to money. I don’t like stable coins by the way. I’m not a huge fan, but I think they are more realistic money over internet protocol because they peg to money and do a very similar thing to Bitcoin.

Chris Burniske: So this is where I think of money as a store value, means of exchange and unit of account. The crux of that progression first being a good store of value and we see Bitcoin doing just that. I share some of your concerns around the means of exchange and I think it’s TBD. I also read “The Bitcoin Standard” and I’m good friends with Murad. I understand the points and the thinking around their intended progression of Bitcoin. I think that if you follow the line of thinking within “The Bitcoin Standard” where… The argument there is that the world has been infected with inflationary assets and that we actually need to go back to deflationary assets. That sets up all the right spending and saving patterns and so on and so forth. I think it’s a very elegant thesis and enjoyed reading the book. I think something that I haven’t figured out for myself yet is what happens when the majority of the world still operates under an inflationary regime and Bitcoin is a significant store of value, but say not the majority store value. I think it’s very hard psychologically for people to spend something that is deflationary when the world is mostly inflationary. I’m talking about supply schedules here. So does that require us to assume that Bitcoin needs to get to majority value capture of the world’s assets or at least the world’s monetary basis in order to say have this… It’s really a behavioural switch, a psychological switch and that’s asking a lot. That could happen, but I don’t think I have enough information here and now in 2019 to say that that’s the likely outcome.

Peter McCormack: How confident and bullish are you with Bitcoin?

Chris Burniske: Over the next 10 years I’m extremely bullish.

Peter McCormack: Okay. How bullish are you with Bitcoin then compared to your investments in tokens? Because I guess with tokens there’s still a lot more to prove.

Chris Burniske: Yes…

Peter McCormack: is this a calculated bet?

Chris Burniske: Well, everything’s a calculated investment and there’s the expected value being the probability multiplied by the reward. There’s so many things with Bitcoin. I guess where does my fundamental conviction in Bitcoin lie? I think it comes down to being maybe the most perfect instantiation of the commodity theory of money that we’ve seen, in terms of that it was the first crypto asset. Because of that, it priced every subsequent crypto asset and it was the most liquid crypto asset.

So it has become the bloodline of liquidity for the entire ecosystem and because it prices everything else, it is intractable. This isn’t a technology thing, this is a social thing and it’s not something that can be taken away from Bitcoin, but it is something that Bitcoin can lose. So when I approach Bitcoin, say from looking at the many competitors out there, I don’t think of those competitors as being able to take anything away from Bitcoin, because what Bitcoin built happened so organically and it’s so entrenched in the ecosystem. So that gives me a lot of conviction in the context of a retail hodler Bitcoin, it’s an amazing store value.

I think the other thing I’d layer in there is the type of scarcity that Bitcoin has, you could really only create that in a digital world. It is so artificially scarce and with the supply schedule that converges on a 0% rate of inflation, you can’t have that with physical commodity monies. So being set up as the perfectly scarce asset, I think that’s a fascinating psychological experiment that should be directionally positive for the price.

So let’s say that’s retail perspective for myself as a retail huddler and then from Placeholder, the more institutional perspective I gave you the commodity theory of money, but also holding it as a reserve asset of crypto and a potential cash equivalent. We’ve seen with prior cycles that Bitcoin and say some of the other macro assets have this a see-saw effect with the other assets where say Bitcoin will rally, as the unit of account it might suck some of the air out of the room. There’s a liquidity crunch on the other assets and so Bitcoin on a relative basis appreciates.

So you can actually use it at that point to buy some of the underperforming crypto assets. So as we build out this broader portfolio and a significant Bitcoin position, even though we are a venture fund, you may see us taking some of our Bitcoin position and buying other crypto assets, if Bitcoin has rallied strongly and some of the other assets that we have conviction in the underlying fundamentals, haven’t shown that life in the market yet.

Peter McCormack: So I’m like you, I’m bullish on Bitcoin, but as I said, I’ve got a huge amount of scepticism with tokens now. I think it’s going to be very interesting to explore that with you because I guess one of the things for you is your reputation is predicated on the success of tokens.

Chris Burniske: My professional reputation. My personal life is something else entirely.

Peter McCormack: That’s what I mean. Your professional reputation is predicated on the success of tokens. You’ve been ballsy enough to write the book and put yourself out there and say this is what you believe. But at the same time that comes with risk. We know how brutal and savage Twitter can be at times. I mean you can close your laptop off and get away. But so I’m interested to learn about why you’re bullish because my scepticism comes from, more just having a general feeling that a lot of this doesn’t make sense.

Chris Burniske: A lot of it doesn’t make sense. 95%?

Peter McCormack: Potentially more I think to be proven. But also one of the other things that gives me just a little bit of a sour taste is that I think funds can extract value from their investment before the technology is proven, by extracting value when the tokens go on, say public sale. I’ve interviewed Ari Paul, Kyle Samani, here with yourself now. That’s one of the things that I have a slight concern about.

Chris Burniske: I have the same concern.

Peter McCormack: Okay. So let’s unwrap this. So let’s start with… Convince me that there is a model in the future for people to buy and use tokens in these networks.

Chris Burniske: Sure. I actually may not convince you of that, because I don’t know that the model is so much a demand-side focus model as much as the supply side focus model. That would be more the creators of the service as opposed to the consumers of the service. But stepping back for a moment, we just discussed Bitcoin and Bitcoin has proven that a purely digital asset on a decentralized ledger can be a store value. If you go back to 2015, the last bear market, that wasn’t a stronghold, an intellectual stronghold the way it is now. It’s hard to imagine now, the uncertainty that was there then. Even if you take traditional finance in that period, I was at different conferences where it was Blockchain not Bitcoin mania and was dismissed.

So just understanding that there are these psychological shifts that happen. In the early, especially in the first bear market that follows the creation of a new movement, it is natural that there would be a lot of uncertainty. I wrote a post on this called “the best time to build and buy tokens”, that really explains the psychological progression. So that’s the starter of say, okay, Bitcoin has made it through this journey of conviction and the other crypto assets are much earlier in their journey. Why do we think they fundamentally have value?

I would say that the majority of what we’re seeing in the market today is more an evolution and replacement for equity, than a replacement for currencies. Not Bitcoin. Bitcoin as we just discussed and some like it like Monero or Zcash and really hard proof of work based assets and we can come back to value accrual through proof of work in a moment. But those assets are focused on currencies. But a lot of the ones that are stake based or bonding based or whatever it may be, are actually organizing a supply side that is provisioning a service, a supernational service and enforcing the rules and governance and evolution of that service in such a way that, if it works out, the supply side that is holding that asset gets to claim to the value flows of that service.

That is actually very much a discounted value flow model, similar to how equity would be valued. It’s different from an equity in terms of the third party. If you go to the Howey test, the efforts of others and this third party is a very amorphous third party. It’s really this collective, who is the third party in this instance? It’s also very different from inequity in that with inequity you have a passive collection of dividends.

Whereas when you’re organizing the supply side, the crypto assets base is partially productive, partially value flow producing, partially nonproductive, partially a consumable transformable, which is where people kind of get stuck. So the productive base, you have to be an active participant in that network in order to get value flows, which from an egalitarian perspective is very important. Joel my partner has done a lot of great work thinking around how equity has led to some of the inequalities we see in the world today. But the fact that you have to be an active participant to get access to the value flows, is a very important component of any crypto asset.

So if I were to say lay forth a framework and I need to put out a piece on this soon, the framework coming from an evaluation perspective, you can think of broadly there being three superclasses of assets. Stop me if at any point this is unclear, but three superclasses of assets where there are capital assets, which are typically thought of as cashflow producing. So bonds, equities, income-producing real estate, those kinds of things. There are consumable transformable assets, which are more your typical commodities; oil, wheat, natural gas, metals. Then they’re your story value assets, so fine wines, arts, rare automobiles.

If you take something like gold, it can be both a consumable transformable and a store value asset. Bitcoin I would argue is the same. Holding a Bitcoin doesn’t give you a claim on any value flows. You can’t stake a Bitcoin to be a participant in the network. So I actually think the best way to value those assets is still through the equation of exchange, Mv=Pq, which is what I put out in 2017. But interestingly enough, the majority of crypto assets are shaping up to be capital assets.

To be things that organize and are useful predominantly to the supply side. So I think that the majority of value accrual for those assets will be through a discounted value flow model. What’s really interesting is there’s overlap though where let’s say Ethereum goes to proof of stake. It is predominantly a capital asset, but where it’s used to pay for Gas, it’s a consumable transformable. So I think it becomes a sum of the parts valuation where it’s predominantly discounted value flow for the supply-siders.

But there’s a little bit of value capture through Mv=Pq and as I discussed with the original evaluation piece, velocity becomes a problem and all of those considerations taken into account. But I lay the framework to really try again, as I did originally with the book, try to piece apart how different these systems are and therefore the value capture will be so that we can stop bickering over, “your approach is bad because it’s different from my approach”. It’s not that at all. It’s just they’re fundamentally different approaches trying to solve different things.

Peter McCormack: There’ll be a number of people who will listen to this, who won’t understand a lot of what you’ve talked about there, but who have the ability to invest. I think these are quite complicated decisions that people have to make, but they’re making loosely. So I’m still struggling to understand what is so broken in the current equity model that the token is fixing.

You said maybe because it opens up access to investors who don’t normally have access, but it also does change the value model. Its success is predicated on the appreciation of the token and value, but then with most of these networks, it’s not useful to have a volatile price. So that’s where one of my conflicts comes, that I think most, for example, in the utility space, which has a lot to be proven, almost every instance, it would make much more sense if these were stable coins.

Chris Burniske: So two things in there, what’s broken with equity and the utility token model. Let’s start with the utility token model and actually the word utility token I don’t really like because it’s too broad of a bucket. It’s really just saying anything that has utility that’s not a currency or strictly a currency. I guess I don’t even really know what the utility token definition is, but suffice to say, it’s very diverse.

There’s a lot of diversity within say what people consider a utility token. What I was trying to get at with the capital asset component is actually these assets, say Ethereum proof of stake or all these different things and we see it with Livepeer. They organize the supply side, the providers of the service and they are useful to the supply-siders in enforcing the governance and the behaviour of those supply-siders and to ensure consistency of the service. They’re not so useful to the demand side.

I actually very easily see a world where the demand side doesn’t operate with that native asset at all. They pay in whatever stable coin, whatever fiat coin, whatever it may be that they want and it actually doesn’t matter because the value flow that the supply side ends up getting from staking the native asset, is really what will define the value capture of that native asset. So I think people obsess on the utility token side on the demand side, the consumers of the service.

What I’m saying is I think that’s right to say obsess over the problems with that, but you can’t stop there. You have to say, look at the other side of the equation, which is the supply side where I think there’s a lot more say value capture and usefulness in constructing the service. Ultimately these crypto networks are only going to win. They’re only going to sustain themselves and truly provide value if they provide a novel service that people can’t help but use. Or provide an on par service to existing companies, but for an order of magnitude cheaper. That’s just the economic reality of things. That’s a very sort of cut and dry goal.

In terms of say, what’s wrong with equity. I think as we’ve watched the progression of equity, invented in the early 1600s and the kinds of businesses that are capitalized. Early on, those businesses weren’t exponential in the services that they created and the value that they captured. There was always a significant marginal cost to producing an incremental unit.

As we have marched along through the Industrial Revolution and now into information technology, the scale of the services provided has very much become exponential power law based and the marginal cost of producing incremental units is zero. So I would say one of the core fundamental problems with equity in the world we have today is actually the lopsidedness of value capture and a relatively concentrated base of shareholders that unilaterally hold access to value capture and also control of that service and the services.

You take things like Facebook or Amazon or Google, I would argue we as a globe are dependent upon them, but the ownership is extremely concentrated and is one of the contributors to the wealth and income inequality that we see in the world today. So for the digital services where it makes sense, and again, totally realizing and understanding that it won’t make sense for every digital service, but I think for some or many digital services, a crypto networks model to capitalize and incentivize the supply-siders, the investors, potentially the demand-siders as this broader collective that has access to the value and the control of the service that’s provided.

That intuitively to me feels like the right thing and we have a technology which is at a very early stage, but that we know is highly programmable. So for me to constrain myself in thinking it’s only going to be used for this one thing actually feels ludicrous. I couldn’t possibly say all the things that this is going to be used for.

Peter McCormack: So we’ll come to that as well. So just referring back to equity. One of the things that I think about is, I understand when you say the ownership is concentrated on a small group of people. That’s obviously because of the way equity deals are structured from venture capital. But isn’t there an argument also that there’s some benefit to this because companies become incubated, they have support structures in place from the VCs.

They have somebody who joins the board and they incubate them without these companies having to worry about the value or the liquidity of their assets. They just can focus on solving their product market fit. Yet in the crypto world where we’ve seen this kind of change where anyone can invest early on and we’ve kind of had this wild west of ICOs and companies as such been built from it, which don’t seem to have the same level of rigour around what they’re producing.

Chris Burniske: Sure.

Peter McCormack: So there’s essentially there’s a tradeoff?

Chris Burniske: There’s definitely a trade-off.

Peter McCormack: I’m not sure if that’s a good trade off and I’m also not sure if liquidity is useful before product-market fit has been achieved.

Chris Burniske: Right. It can be more about them in the future. I think that we’re very early on in understanding and evolving the governance standards within crypto networks. But that’s not to say that we’ll never figure them out. Again, going back to say the fundamentals of this as a technology that collapses the cost of asset creation, custody and transfer and really the programmability of that and a vote being a very valuable asset.

I again have a hard time seeing a world where we don’t figure out improved ways to coordinate and govern using this technology versus our paper trails of days past. Now in terms of the benefits to a concentrated shareholdership and say centralization allowing a faster pace of execution, I think there’s merit to that argument and it all goes back to, as you said, trade-offs and how these networks are being set up and I think we are taking learnings from the equity world. Particularly Placeholder finance the early development of pre-launch networks. Setting the pre-launch development aside for a moment and looking at say equilibrium operations.

I think that a very important thing is once we have governance figured out and we’ve hit this more stable, steady state, the fact that the supply-siders, the provisioners of the service have an equal voice and access to value flows as the investors in the service is very important. Because investors are important, as you pointed out for getting something off the ground. But does that mean they should have a perpetual claim on cashflows forevermore, with no one else having access?

Should not the supply-siders or the consumers potentially have access to this network that they are all, say take Facebook, they’re all collectively creating? It feels a little lopsided. It feels a little too good to be true for an investor in the value capture that they get under the equity model.

Peter McCormack: But that’s just the reality of life?

Chris Burniske: That’s the reality of the social fabric that we have created over the last 400 years. But it’s not a naturally occurring phenomenon. This is a social structure that only exists between our collective minds and so we have the capability as a society to change that.

Peter McCormack: So as also you said again, a lot of this is predicated on being able to create something that’s faster, cheaper, better or novel. Without that, and being able to access or create a significant number of users, that actively use the system, none of this will matter.

Chris Burniske: Yes.

Peter McCormack: So at the moment, there seems to be a real problem in achieving that. We’ve had, I would say hundreds, potentially thousands of attempts now and there’s nothing that stands out of having cracked any form of product market fit. Other people talk about “killer apps”. We just don’t seem to be seeing it. I’ve got my suspicions of why, but I’ll let you go first before I tell you what I think.

Chris Burniske: Sure. Well, I think we’re still very much in an infrastructure phase and there will be “killer apps” that pop up along the way. The Silk Road was a very early “killer app”, that converted a lot of people.

Peter McCormack: But the infrastructure phase is a myth apparently?

Chris Burniske: We’ll so Danny and Nick from USV put out a good post about the back and forth evolution. I think that is the point. The infrastructure improves to a point where we have a breakout app. It may not be sticky, like AOL for example, was a breakout app for a period that wasn’t say sticky over many decades, at least not on a large scale. So you have this oscillation infrastructure app/infrastructure app. One pushes the other, one pushes and enables the other. I would say that… So there’s a few responses to this. Let’s say taking things that are working.

We recently put out a thesis post on Maker Dao. Maker Dao in its first year originated roughly the same amount in loans as Lending Club originated in its first five years. That is stunning. Granted it’s a different kind of loan. It’s a secured loan for Maker Dao versus an unsecured loan. But I would say that when you see a network provisioning a service and scaling roughly in order of magnitude faster or say at least twice as fast, you know you have something going on there and that it’s really, and I really should say a protocol because a network can be say equity capitalized or crypto asset capitalized.

But when you have a crypto asset capitalized protocol based network, scaling much faster than you’ve seen in the equity world, that is really the openness of the system empowering all participants to use and further the service at a rapidity, which you almost can’t have because of how closed and concentrated an equity shareholdership is. It’s almost like an equity shareholdership and I’ve never thought of it this way before, but it means we’re getting into good places in this conversation. It’s almost like an equity shareholder ship is a proprietary thing. It’s not an open source thing. It’s not an open anyone come and joins and pitches in ecosystem.

We’ve seen how open source software evolves much faster than proprietary software and in the asset model, I think you can make a roughly similar analogy in terms of these crypto assets are an open source asset. Whereas an equity is a proprietary asset that is very hard to get access to unless you’re inside the club. So those by and large won’t be able to scale as fast now. Totally agreed, we are still searching for the right product market fits for these crypto networks.

Peter McCormack: So Maker Dao is an interesting one. As I’ve kind of bumped into and sympathize with the whole maximalist view and Bitcoin being the only need for a Blockchain, Maker Dao is the one that keeps coming back to me and I keep saying, “okay, I can’t ignore this”. But then Maker Dao’s success itself is predicated on the fact that ETH is a store of value, appreciates in value and the people who have ETH historically have made enough money to then use it for Maker Dao.

But it’s not particularly useful for anyone new coming in who doesn’t pre-own ETH because you have to then buy ETH to then get a collateralized loan from Maker Dao. So I don’t see that as a kind of great mass use case example. I see that as just a small use case for people who already have a substantial stack of ETH. Do you see what I mean?

Chris Burniske: Well, so I would say that when you look at Maker Dao’s roadmap, which they’ve very credibly executed on and so we can say with reasonable certainty, they will continue to execute. First I got to move to multi-collateral and so it won’t just be ETH. It will continue for the foreseeable future to be constrained to the Ethereum ecosystem. But that’s not a forever kind of thing.

Peter McCormack: Do you think it’s a risk that it is tied to the ETH ecosystem?

Chris Burniske: I think it’s a risk, but it’s not an intolerable one and I think we’ve seen one iteration of second layer protocols migrating from operating on top of Counterparty which was on top of Bitcoin, to Ethereum. I think that we may see a similar migration in the future depending on what happens with Ethereum. These things are flexible, they’re adaptable, they’re plastic. But with Maker Dao, I think if you’re bullish on the directional growth of crypto assets, then you should be bullish on Maker Dao as an extremely low-cost credit facility.

I think of it as first and foremost a credit facility, that outputs a stable asset that also happens to be widely used. So I agree right now it is predominantly used as a means to gain leverage for investors in ETH, but use cases tend to start off high value, low velocity for a specific user. They originally looked like a toy or niche, but that’s really what hardens the service to the point where it can become more mainstream, accessible.

Peter McCormack: So what other assets, could it be used for? I mean, it could potentially be used for a “wrapped” Bitcoin,

Chris Burniske: Theoretically any ERC-20 but…

Peter McCormack: But therefore, so again its success is predicated on the success of Ethereum or things built on Ethereum.

Chris Burniske: For now.

Peter McCormack: For now unless it becomes its own independent Blockchain…

Chris Burniske: Or we don’t know what the inoperability world’s going to look like. This is where in crypto it’s kind of like we’re driving down a dark road with our high beams on, but we can only see so far. But I would say that it’s a technology problem to create interoperability of state and value between different base layer chains.

When that is figured out, which I have every confidence that it will be, then it will become easier for middleware protocols and I actually wrote a piece on middleware protocols on our website; to get this supra chain scale and be able to pull resources and users from different chains.

We saw one example of this very recently with Loom, which is operating on top of Etherum, to begin with, but has just offered support for EOS and Tron. Yes, there’s controversy around EOS and Tron and I understand that, but it’s interesting even of itself that here we have a middleware protocol already starting to provide interchange support before, say the interoperability that has been a buzz within the ecosystem, has really become a reality.

Peter McCormack: So this is where I then start to worry about maybe the ethical nature of some of this and look, I don’t want people to be restricted from investing. I don’t like investor accreditation, I think their archaic rules are unfair, but at the same time, I do wonder whether really we’re still in such an experimental stage that these systems should be financed and supported by retail investors.

I mean I’ve been there myself, it’s made and lost a lot of money very quickly and by transparently talking about that story I’ve had an incredible amount of people contact me and tell me similar stories. A lot of people have lost a lot of money and I know this happened during the Dotcom boom, but we’ve lowered the threshold for investing by making it very, very easy with services like Binance.

I then worry about how ethical some of these crypto funds are who are promoting a narrative of a future of Blockchains and tokens who are investing early on in projects and protocols, yet are able to extract value and exit before anything has been proven as a success. I think that’s where I prefer the old world of equity investments, as opposed to now because a lot of these funds could make a return without actually any of the projects being a success.

Chris Burniske: Yes and I think the key linchpin there of what’s changed is the pathway to liquidity or the bar to liquidity is much lower. So the concern I hear you’re raising is that an institutional investor can get liquidity and exit an investment much more easily and potentially return a profit even though it was a useless asset.

Whereas in the traditional equity markets, it has been so groomed over time. We’re 400 years in now into the evolution of the equity markets. It has been groomed over time and it’s so commoditized, say in all of the operations and how everything’s understood that it has a much better filter for filtering out the junk and the things that should die, do die before they leave an institutional investors balance sheet and hit retail. So I think it’s an important concern.

Peter McCormack: It’s not always the case though, because obviously, we can look at something like Snapchat or Pinterest, so those themselves are still yet to be proven, especially Snapchat. Snapchat to me as an IPO itself feels very similar to some of the ICOs in that its share price really struggled after it.

Chris Burniske: Well you’re kind of pulling us into a broader conversation around venture capital because there’s a whole other side conversation totally unrelated to crypto around the ballooning size of venture capital funds. I mean Placeholder as a $150 million fund seems big to Crypto. But when we talk with institutional investors we’re a small fund, we’re a small venture capital fund, “boutique”.

So part of the frenzy around venture capital has been because for certain venture capitalists, the returns have been so good and also as an uncorrelated asset class to say traditional public equities and bonds, there’s been a lot of appetite for that. But when there’s a lot of appetite for that, it balloons the fund sizes and therefore the asset prices. Ben Evans from Andreessen Horowitz has a great presentation that shows how private equities, private companies are staying private for longer and raising more money and all of these things. A lot of the value is being captured in the private market before it even goes public.

So it’s actually almost the inverse problem of what Crypto has. The traditional equity market and again, I’m just thinking through this with you on the fly. But the traditional equity market, these companies, you take something like Uber has stayed private for so long, it’s now whatever, $50 billion — $70 billion company by the time it goes public that a 10x from there and it’s a $500 billion — $700 billion company. Whereas say when Microsoft IPO’d the returns I think we're in the 100x or 1000x, which is insane!

But in the public equity markets, because people were going public early on, there were lower pressures and requirements. So that’s our traditional equity world and you could argue, and I think Fred Wilson put this either in a tweet or a blog post in a way, crypto assets are a backlash against that of early to liquidity as you could possibly imagine. This is I just think another cycle of each generation wants to be new and do something different from the generation before it and society is this constantly swinging pendulum, where we go too far in one direction and so we swing back and we go way too far in the other direction.

We occasionally hit these sweet spots where things run well, but inevitably swing too far in another direction. So it’s going to be a constant evolution. I think for myself as an investor, to be clear, I never thought I would work in finance. My parents were educators, I was raised around the world, they taught at international schools. I was raised to kind of think of finance as the devil and never thought I would be where I am today. So I have a bunch of considerations and say insecurities about what I’m doing and how am I contributing for better or worse to income and wealth inequality in what I do.

So I would never want Placeholder to have a profitable investment that didn’t provide true utility for the world. How we handle that is an ongoing conversation. Do we just let an asset that’s part of our portfolio that is pumping, do we not sell it because we know that it’s an artificial pump or you know, it’s not at all tied to fundamentals. These are very serious ethical questions which we take seriously and we engage with on a regular basis.

Peter McCormack: Have you as a fund exited tokens during a pump.

Chris Burniske: We haven’t.

Peter McCormack: Have you exited any tokens?

Chris Burniske: We have not sold a single thing. Again, this is where we’re very different from a hedge fund. We are not traders. I think of us as buyers in bear markets, sellers in bull markets and you end up being a liquidity provider on both ends of the spectrum. When everyone is selling, you buying, you’re a liquidity provider. When everyone is buying, your selling, you’re a liquidity provider and can actually help dampen the volatility of our constituent portfolio assets through that process.

But I would say that we as a venture fund, we build these large positions over time, work very closely with the teams and we are still discussing internally about how we handle the exit process and do we do it incrementally? Do we do it in one fell swoop? Of course, we communicate with the team. How much should we communicate with the market? Our very name Placeholder really reveals everything you need to know about how we think about ourselves. We are a placeholder helper, placeholder hodler within these networks that yes, must ultimately exit the investment, but hopefully, it is at a point where the thesis has played out.

The network no longer needs an institutional investor and this is kind of going back to our earlier conversation of should we get a claim on value capture forever more? Or should we just serve our most important purpose early on in the life of a network and then leave the vast majority, the vast remainder of the pie for the supply side, the demand side as the core developers, when the network is really starting to inflect in its fundamentals.

Peter McCormack: What happens on year 10 when the fund closes? Do you have to exit every position and close the fund?

Chris Burniske: So we have what’s called a limited partner agreement, so an LPA with our investors who are LPs or limited partners. Basically, it’s a 10-year fund, which means our investors can’t withdraw or claim their capital legally for 10 years. We also have two one year extensions where we could go to our advisory board if we have assets that we think still need a couple more years. So it becomes a more flexible process. I like to think of it as this cocoon of capital to allow us to not be distracted by the markets and to really focus on the task at hand.

Peter McCormack: Do you worry at all about being able to exit because of low liquidity?

Chris Burniske: Absolutely.

Peter McCormack: Because it seems to me there are a lot of funds who hold a lot of tokens, but these markets are highly illiquid.

Chris Burniske: Yes it’s definitely something I think about. Lots of people know we’re highly involved with Decred and one of the things I work a lot on is having conversations with different exchanges and liquidity providers about the merits of Decred and helping to organically build liquidity that way. I think for Decred it’s important to build liquidity. I think that different assets are going to have different required liquidity profiles.

So for example, governance assets, it might actually be okay if they’re slightly more illiquid. That might actually be more of a feature than a bug, in preventing say a hostile takeover very easily, because there’d be so much slippage in the market if someone were trying to amass a large percent of the asset. So that’s one consideration within the liquidity realm.

I think we’re going to start to see much more segmentation in the capital market structure of crypto assets in terms of, we’ve been predominantly exchanges and OTCs have really risen to prominence over the last few years. Now we’re seeing things like [Inaudible] as a prime brokerage, which is aggregating all of these different liquidity pools. So you will start to see different assets having liquidity in different places for different reasons.

Peter McCormack: I assume you’ve discussed Decred with Murad?

Chris Burniske: At length.

Peter McCormack: Yeah, I was with him in Hong Kong and a lot of people seem to know that he’s very bullish on Decred. I don’t know anything about it, to be honest.

Chris Burniske: Well we wrote an investment thesis on it, that’s also on our website. Just very simply, I think of it as Decred has it, it is hyper-secure, adaptable and sustainable and that kind of gives you the framework that you need to dig in more.

Peter McCormack: So I do want to go back to one of your points you said to me about, that you feel that the hardcore Bitcoin maximalists, I call them the hardliners that shout loudly on Twitter, do more harm than good for the mass adoption of the currency. So I think it’s interesting to talk about that because I’ve been really wrestling with this and even this morning, before I came here, I had an hour-long conversation with Shinobi who was on Stephan Livera’s podcast, a hardcore Bitcoin maximalist, because there’s been a lot of questions over my guests recently.

I’ve had people who were considered frauds and scammers and almost certainly this interview will get flack because it’s a Bitcoin show supposedly, and they’re not your biggest fan. They don’t appreciate the work you’re doing because they believe in one Blockchain, which is Bitcoin. They believe everything other use of a Blockchain is a myth. They believe that crypto assets are a myth and they’re not part of the same category.

Chris Burniske: Well Bitcoin doesn’t believe any of that.

Peter McCormack: Let’s say Bitcoin’s community. So I have a lot of sympathy for this because I still struggle to see all the use cases after all this time. I’ve looked at the various tokens you can invest in and every time I go down these I’m like, “nothing now gives me a gut feel that it’s worth the investment”. You obviously have a different thesis because you’re a fund and you look into it more detail.

But I used to think and I’ve gone through times thinking the hardline maximalists are damaging and toxic. I now think very differently. I actually think that they’re absolutely necessity their hardline approach, it’s almost like it doesn’t matter if this delays adoption, the hard-line approach protects Bitcoin and Bitcoin needs protecting because it has so many threats.

Chris Burniske: So I don’t think Bitcoin needs protecting. I think that going back to the commodity theory of money thought trail that I laid out earlier, Bitcoin’s doing amazingly well and it will continue to price and be the bloodline of liquidity for pretty much every crypto asset out there. That actually by berating new people who come to the community or people who have differing ideas, that that actually counteracts the momentum that Bitcoin naturally has.

You mentioned me say as someone that maximalists dislike. What’s interesting is I’ve had a whole arc; the Bitcoin community in 2014 in 2015 in 2016 even. I mean if you look at 2015, I put out two whitepapers, one “Bitcoin, a disruptive currency” where we actually put in that whitepaper that Bitcoin could hit $17,000, that was celebrated by the Bitcoin community or securing the network paper, it was really doing deep research on and just specific to Bitcoin because that’s really all there was of note at the time, Ethereum had just launched, looking at what the transaction fee would have to be when Coinbase rewards phased out. The new asset class whitepaper, really just digging into tons of stats on Bitcoin’s returns, Bitcoin’s volatility, risk-adjusted returns, really contextualizing it for institutional investors. ARK was the first public fund manager to invest in Bitcoin. That again brought a wave of goodwill.

If you go back in Youtube shows in time, I was on with Vortex a couple of times and had different friendly exchanges, for example, with Mr Hodl. I think there’s one memory that comes to mind is, I posted a photo of me with Bitcoin beanie and it was clear I in New York. He said something like, “keep wearing that and we’ll run into each other in New York”. So I started, I think it would be overinflating myself importance to say, cherished by the Bitcoin community, but an embraced member of the Bitcoin community early on.

So I, from my first-person experience, have watched as I started to explore and just ask more questions and I didn’t intend it to be in a threatening way, the backlash that that started having. I think that there are a few scenarios on Twitter that I could have handled differently and I think that it’s never good to fight fire with fire on Twitter. It only amplifies and negativity. You need to be a positive vessel and just absorb negativity, not reciprocate it because then you only amplify it. Twitter has been a meditative tool I would say for me in that regard, but I don’t really have much of a feeling I think anymore regarding maximalists.

I think that intellectually I worry that if we’re trying to take Bitcoin mainstream, that means the vast majority of users will not be educated about the merits of Bitcoin. They won’t care. They just won’t care. They will actually be turned away if they feel like they have the screaming mob asking, “why the hell did you use this other asset?” Because they’re just trying to use things that are faster, better, cheaper, or novel. I think that something very controversial to say. Let’s take Coinbase. Coinbase as an application has done a massive amount of converting of people into Bitcoin hodlers and it’s not through the preferred self-sovereign custody model.

But I’m willing to bet most people don’t want the pressure of our ideologically preferred self-sovereign model. So I think a lot of this ties very deeply into the way I live my life and guided loosely by different eastern philosophies. But the vitriol, the negativity and the hate I find totally unnecessary and not constructive. I don’t think that Bitcoin needs to be defended in such a way and I think it’s counterproductive to defend it in such a way. Bitcoin actually defends itself perfectly well of its own merit.

Peter McCormack: So I guess where I would give an example, I think it was useful was SegWit2x. We had a private New York agreement with companies attending …

Chris Burniske: A fight intro-Bitcoin though interestingly, not tokens against Bitcoin.

Peter McCormack: Of course, but this is entirely focused on Bitcoin. If SegWit2x had activated and the core repo would have gone over to, I think Jeff Garzik’s team, I’m shooting from memory now, I think that was a huge risk. I think it was defended and rightly defended. But because there were people like John Carvalho going into the threads and there were people like the hardcore maximalists who were threatening like the companies, not in a physical way, but just making them really understand what they were doing was wrong and the deal fell apart because there was so much anger and so much hostility towards that.

We have to also thank Luke Dash Jr’s UASF, but there was so much hostility towards it and I think that requires some kind of hard-line approach. I think that requires people who do feel they want to defend it. Because Bitcoin has been under threat its whole life, its whole existence. I don’t think it can be defended unless it has those people who are willing… I heard one guy say, “I would die for it”. No, I don’t think we should die for it. But I understand the sentiment.

Chris Burniske: So you raise a good point and actually want to walk something back. I think that Bitcoin thus far in its life because you’re right that it has been under attack and it’s been under attack from traditional finance and these kinds of things. I think that thus far in Bitcoin’s journey, it has needed to be defended in this way and with say extreme conviction in ideology. Part of my point is Bitcoin is like a tree or like a child, in that it grows, it starts off green and it needs to be protected. But as it unfurls it enters different stages.

If we really are committed to the mainstream and then the rhetoric either needs to change or it will be buried in the wires such that it’s irrelevant. I actually think the latter is probably more likely, which is why I don’t beat the drum on this too much and I just let it be where it is because social media is not a constructive place to have these conversations anyway. It’s too nuanced and social media is just going to want the emotion in the fire.

But I think that we have to encourage the community to be mindful about the progression of what’s necessary and to not alienate people who are just thoughtfully raising questions. Another way to think of it is every community is going to have governance or maybe better put as every community has to make decisions. There’s always going to have to be a choice about the pathway for how those decisions are made and not setting up a framework is a decision in itself.

That is the choice of governance. I understand governance is a loaded word, but just using it as the best example we have now, taking that into account and understanding, okay, so this is Bitcoin’s chosen form of governance. I think also for Bitcoin, it moves faster than people think it moves. But I don’t think it needs to say move as fast as say Ethereum does, just because of the value proposition that it provides to the world. We’ve gone on a bunch of different threads!

Peter McCormack: Yeah we’ve bounced around a lot and covered a lot of things. I’d like to talk about the Coinbase thing at the moment. So one of the arguments that the Bitcoiners have against Coinbase is that whilst Coinbase originally supported Bitcoin, has been good for Bitcoin, it’s onboarded a lot of people. It also has arguably been a threat to Bitcoin. Being VC funded to a valuation of something like $8 billion at some point, it has to deliver return and with that, of course, comes pressures and I assume a16z have a voice in their direction and I assume a16z hold a lot of ETH. I assume Brian Armstrong holds a lot of ETH.

Chris Burniske: But they also probably hold a lot of Bitcoin too.

Peter McCormack: They hold a lot of Bitcoin, but there is a necessity for them to introduce people to unproven crypto assets. By the way, which is interesting because it’s still very difficult for some institutional investors to invest in Bitcoin because we’ve had such a delay in getting an ETF approved. Yet at the same time, it’s very easy for an uneducated retail investor to go on Coinbase and buy 0x; something they probably shouldn’t be buying or arguably shouldn’t be exposed to.

What the bear market has exposed is I think Coinbase’s need to deliver a return for the silicon valley investors and therefore it seems like… It’s almost like their product strategy reflects a big drop in revenue and a need to push and compete with the likes of Binance. That to me does feel very unhealthy and I can then understand from Bitcoiners why they see Coinbase as a threat because Coinbase’s incentive is to make money, not to promote Bitcoin. Bitcoin isn’t meant to be about supporting VCs, growth and investor returns. It’s meant to be about providing hard decentralized money and there’s a conflict there.

Chris Burniske: So I would say this is the newest narrative. But there’s a long history between Coinbase and the Bitcoin community,

Peter McCormack: I guess because Brian Armstrong has supported most of the contentious forks.

Chris Burniske: But if you go back to Coinbase’s founding and even when I was ramping professionally in the space, there were still people who would pick fights with Coinbase, because it’s hosted. Or different security concessions. I think maybe something that repeatedly happens is an inability or an unwillingness to see and accept another entities perspective and it is what it is. They’re going to do, what they’re going to do and they’re going to have a different value system than your value system.

But no amount of yelling, kicking, screaming is going to change it. So we can have rational, thoughtful discourse around it and understand why everyone is doing what they’re doing. But you don’t persuade people with expletives. You persuade people with logic and reason.

You laid out the logic and reason for what they’re doing and I think it’s one of the reasons why they’re doing what they’re doing. I don’t think that… so I know Fred Ehrsam much better than I know Brian and Fred’s no longer with Coinbase. Actually, a lot of the people I know well, are no longer with Coinbase, but I have never felt in conversations with any leadership at Coinbase that there was any malicious or nefarious intent against Bitcoin.

Peter McCormack: No, but the business has pressure. That’s the problem, it’s quite obvious. They used to have a very strict set of rules for releasing tokens. That’s become very relaxed. I think it’s very difficult to argue anything other than revenues have dropped. They have competition from Binance and I think possibly, Bitcoin is in some way this weird gift. It could have not happened. But it has and for some reason, it’s worked. It’s still here after 10 years and it really is genuinely a miracle and a gift to the world.

Then I start to feel like, yeah, maybe we do need to protect this. Maybe we do need to defend it with all we’ve got because most other things out there in this kind of crypto asset world are opportunities for people to make money. There is some kind of pseudo equity model as we’ve discussed today where people have invested early on and they want a return.

Whereas Bitcoin is kind of different from everything else. You talked earlier, I wrote this down, but you said, “we’ve seen a collapse in the cost of asset creation and that’s created this incentive for people to create tokens and issue ICOs for selfish, fraudulent and scammy reasons”.

Chris Burniske: But also for good reasons.

Peter McCormack: Sometimes yes, but both have happened. Bitcoin is like we have this gift and I understand now why people want to defend it because I know now myself in what I do, I’ve talked about my podcast, it’s changed my life. I get to travel the world, meet people. I don’t want to fuck it up. I do not want to fuck this up and I am fully now conscious that I have a podcast with Bitcoin in the title and I owe a lot to Bitcoin. I’m conscious that I do not want the wrath of the maximalists and I’m glad I have that.

Chris Burniske: But I also don’t think you can be afraid of the wrath of the maximalists. If that becomes its own form of censorship, of speech, that makes the community more brittle. We learn from biology that diversity of species leads to the robustness of the ecosystem and so I think that diversity of ideas is always going to be important. think that something I worry about with what we’ve seen with Bitcoin and not just Bitcoin, broadly in crypto, because of the ease of forking and that most of this communication happens online where people are meaner than they are in person.

We have these divisive arguments that are never reconciled and so we just end up forking saying, “fuck you, I’m out of here”. So we have governance by defection, as opposed to recognizing that life is always a compromise. It’s a compromise with yourself and your own priorities and you know how much time you can fit in a day. It’s compromised with others and your interpersonal relations. When you blow it up and expand it to the scale of a crypto network, it gets even messier.

But I think that it’s really important as much as possible to continue to evolve and craft together as opposed to just continuing to splinter, splinter, splinter, splinter, and this is a lot of our thinking behind Decred. Finding if we set the expectations around governance, communication and conflict resolution, then hopefully we as a community can agree to disagree in different periods, but collectively move forward. I think that is the most constructive way to do it. Otherwise, you go back to this community that whittles away in governance by defection and I just don’t think that’s healthy.

Now for me on a personal basis, I hold two things. I hold Bitcoin and I hold Ether. I guess I have Bitcoin Cash from the fork, which I never sold because I learned to not sell Ether from the Ethereum and Ethereum Classic fork. I guess I have all the children forks, which I haven’t bothered to go claim. But I hold those two things as a retail investor and I do that because I don’t want to think about it. I have reasonable conviction in these two assets going forward and I manage a whole portfolio for Placeholder.

But I think it’s perfectly rational for a retail investor and probably advisable to just hold those two assets or you know, you mentioned Monero, totally different code base. I think that’s an interesting addition and I actually used to hold Monero before we started Placeholder. But yeah, keep it simple if you’re investing from a retail perspective and especially in this bear market, there’s a consolidation to safety, a psychological reversion to say the things that we know, Bitcoin has been much more proven. So if you’re only holding Bitcoin, that’s fantastic! At least you’re holding Bitcoin.

Peter McCormack: Do you know what I find really interesting? Is that there are a considerable number of people with a very binary view that Bitcoin is the only valid use of a Blockchain and the only crypto asset that will exist. They have the fundamental belief that everything else is a fraud and a scam and will eventually fade away including Ethereum.

Then there is another group of people who fundamentally believe that there is multiple uses for a Blockchain and there will be multiple crypto assets. I find that so interesting that we’ve got these two groups of people with these opposing views and I honestly, I genuinely don’t know what’s going to happen. I don’t know in 10 years time, all the maximalists are going to go, “yeah look we were right. Ethereum’s dead, Decred’s dead, nothing has survived”.

Or in 10 years time, we’re going to have this vibrant ecosystem of Blockchain based systems. My suspicion is that it will be only Bitcoin.

Chris Burniske: You are entitled to your opinion and your first-person subjective experience. I would say empirically it has only been trending in the other direction over time. I think the first altcoin, Namecoin if that was it, but in the Namecoin, Feathercoin, you know all those things era, which I believe was 2011, a rendition of this conversation was already being had. We’re eight years in. We’ve gathered a lot of empirical evidence. A ton more money has flowed in. A ton more talent has flowed in and the majority of it is not with Bitcoin.

Bitcoin has the largest percentage of any crypto network and I think will continue, will always be the mother and I think has high odds of continuing to be the bedrock for decades to come of the crypto ecosystem. But directionally it’s only going in that direction and so I’m a very data driven person. I will change my mind and try to have very little ego in my ideas because that’s the death of an investor being attached to your ideas for no good reason. I will change my mind and change my ideas if I see it heading another direction.

But empirically I’m just seeing more and more talent and interesting things being built say outside of Bitcoin. That is not to discount what is happening within Bitcoin. I think there are amazing things happening within Bitcoin, but for me, it’s not an either or and it goes back to the world of programmable value. If you look at the world’s assets, monies represent I think roughly 10% of the world’s assets. There’s so much more. So I feel it’s like when you see horses on the road and they’ve got those blinders, I just don’t understand the blinders.

Peter McCormack: Well talent is subjective. I mean somebody could say all the best talent is in Bitcoin because they understand it’s the only use. So I think talent’s subjective I would say.

Chris Burniske: But what about someone like Zooko?

Peter McCormack: I mean I would say Zooko is a very intelligent person, a lot of the skills. But I also think he’s the kind of person who would excel as somebody having a boss, not as a leader or a CEO of a privacy coin. I think zCash has many, many issues and I don’t see a future for it and I don’t see it being adopted. I think the clash between shielded and unshielded is very odd. I think the user experience… And the price has only gone one way. It’s just dropped and dropped.

So a talented guy. But what I’ve noticed is that there’s a lot of people who worked on Bitcoin and then go and work on alt projects for a number and a variety of reasons. But I don’t think it’s right to say there’s more talent in one area or the other, because I think talent is subjective.

Chris Burniske: It is.

Peter McCormack: Some people would say I am a talented podcaster. Some people say I’m a terrible podcaster. It’s subjective. Also directionally it’s definitely on certain metrics going one way. There’s lots of things being built, lots of supposedly interesting things coming out; Polkadot, Cosmos. I struggle to keep an eye on them because I’m starting to pay less interest to most of them because what the maximalists would say is, “we’ve been here for 10 years and we’ve seen these cycles. Money comes in, projects happen and they die. Nothing else has lasted with the strength of Bitcoin”. It’s very hard to kill a Blockchain.

Chris Burniske: Well nothing else could have lasted as long as Bitcoin because Bitcoin is the first.

Peter McCormack: No but with significant usage. There is a real lack of materially significant usage of anything. I mean even Bitcoin at sometimes… Well, I spoke to an OTC desk and he said, “Bitcoin is the only sensible tradable liquid crypto asset”. Nothing else is worth having on their OTC desk. So I’m just saying the direction it's going because there is this belief by people and there’s money coming in from venture capital to prove that these Blockchains can be used for something else. But that doesn’t mean it will.

Chris Burniske: It doesn’t. It absolutely doesn’t. I think when I look at metrics and I understand the problems with network value, but Bitcoin’s dominance being its network value divided by network value of all crypto assets outstanding is generally trending down. I would love for someone to do, and maybe we’ll do it internally if no one does, but just looking at… As flawed as all of these metrics are, I think there’s an interesting study to be done on say, the network value.

If you take the aggregate capacity of all these different metrics and look at Bitcoin’s share within it, things like network value or number of transactions or transaction value or hash rate or even say percent of networks that have proof of work based versus proof of stake based. All of these other things are taking share, not because they’re better than Bitcoin, but because there’s only so much that can happen within Bitcoin and Bitcoin being the community that we’ve described it as is not necessarily the most welcoming to a new developer coming to the space.

So people are choosing to build on other things and they may be half as talented, they may be a 10th as talented, but the experimentation is happening. I’m willing to accept if it all becomes a failure. But again, I just directionally haven’t seen that and when I look at Ethereum stats, for example, amount of gas used being really the key utility metric, that has held up much better than actually Bitcoin’s core metric of value transacted and that is developers.

Peter McCormack: Why is value transacted a core metric if it’s a store of value?

Chris Burniske: Of the network’s processing capacity. I agree store of value is kind of this latent feature, but if you’re going to use the network for something active, as opposed to passive, I would say that transaction value is the most important active utility metric.

Peter McCormack: Okay. I would struggle with that because it’s a store of value. It’s had its scaling difficulties as everything had. So I personally would struggle with that.

Chris Burniske: But I wrote a piece in December when everything was tanking just called “Bitcoin & Ethereum: prices are down more than fundamentals”. Where actually we went through an exploration of all the different fundamentals, at least as much as I could do in half a day and wrote it up just to show things are still happening.

If you turn away and if you mistake depression for death, then these things will continue to blossom and grow and become unexpected successes. I believe, you may not believe, in the years to come, but I think the important thing is you and I have no animosity for each other. This is a good conversation. This is a rational, level headed, engaging discussion and I just want more of this in the crypto community, as opposed to the toxicity.

Peter McCormack: Yeah, definitely. I’ve really enjoyed this. We could probably do another hour! We would almost certainly do this again in the future. I’ve got a lot out of it. I still stand by thinking the hardliners, I think they’re necessary, I really do.

I feel like I have the freedom to do as I choose and I choose to do this interview and I’ve enacted it in a way… Nothing has changed about the way I would have done this interview because of the hardline maximalists. I don’t feel like I can’t have my curiosity. But at the same time, I’m fully aware. I feel like they’re sat here on my shoulder just watching over me saying, “be careful Pete!”

Chris Burniske: Well from their perspective you’ve just gone and gathered information from the enemy.

Peter McCormack: Yeah. Well, you are part of the threat model! But no, I appreciate what you’ve done. I’d be interested to read your book again now because the last time I read it was about a year ago. I’ve actually got a little stack of them at home.

Chris Burniske: I’ll have to sign that one.

Peter McCormack: Do you know what I’m stupid, I should have brought two.

Chris Burniske: I’ve got an extra. I’ll give you an extra!

Peter McCormack: So I would like one and probably give one out as well. But I appreciated the book at the time. It was very useful for me for a number of reasons, but I’d almost be interested to read it back again and see how I feel about it now because I’ve changed a lot since then.

Chris Burniske: I’d be curious to see how I feel about it.

Peter McCormack: Well that’s why I asked you in the start. I was wondering what you would think because there’s certain things that have had a lot of pressure, like the equation of exchange. A lot of people have challenged that. Velocity has been challenged.

Chris Burniske: Sure.

Peter McCormack: So it would be interesting to see where you went with it again. But I think this feels like a good point to wrap things up. I don’t often record for an hour and a half! Actually what I’ve noticed is the less I look at my laptop and the more I just talk, the longer the interviews are. So for some reason, it seems to work better. Anyway, it would be great to just tell us what’s coming up for you guys. If people are interested in Placeholder, how they can find out about Placeholder and who you want to hear from.

Chris Burniske: Well, we’re always making new investments and open to conversations with engineers working on interesting projects. Placeholder’s website is just very simply placeholder.vc. I’m on Twitter at @cburniske and you can find me other messaging mediums, though I’m more elusive.

Peter McCormack: Thank you so much for having me here finally.

Chris Burniske: Thanks for having me, Peter!

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Chris Burniske on The Ethics of Investing in Tokens was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.