ichthyoid

In the third episode of Block Stars, David Schwartz interviews the CEO of Binance.US, Catherine Coley, who used to be the Head of XRP Institutional Liquidity at Ripple.

In this episode, they discuss the importance of growing the general public's knowledge of blockchain and cryptocurrency, especially in light of present day circumstances.

Note: there are comments in the episode on the halving of Bitcoin that were obviously made prior to it (the halving happened on March 11, 2020, while the episode aired on May 5th). The episode summary will just reiterate what they talked about, while my thoughts on it will be commentary after the event.

Episode Summary

After her years at Ripple, Coley joined the Binance team to start Binance.US, a currency exchange platform specifically targeted for the United States. Previously, the main Binance platform, which originated in China, had also served the United States along with other locales around the world. However, due to regulatory concerns, the United States was cut off from the global Binance exchange in 2019, and the team decided to start a smaller, US-focused exchange called Binance.US.

The United States, which is usually on the forefront of technological innovation, seems to have lagged behind the rest of the developed world in regards to cryptocurrency and blockchain. Coley argues that this may be because much of the issues that are solved by cryptocurrency don't really exist in the United States. Whereas those who live in areas like Hong Kong, Singapore, and even those in the Eurozone often must cross international boundaries in regular business dealings, people who live in the United States have the benefit of not needing to exchange currencies every time they go to another State. This ease of use for US fiat as both a national and world reserve currency, along with the fact that the United States has very strong and stable systems for trade, has arguably lessened the need to participate in a global economy. Thus, such innovation hasn't developed much until now.

While Coley is optimistic that regulators in the United States will come around to put positive regulations in place for cryptocurrencies, it may be some time before this can happen. This may be due, once again, to a lack of exposure to cryptocurrency and even things like online presence for many policy-makers in the US currently. Instead, it may require new policy-makers who are “more digitally native” for a landscape change in crypto regulation.

However, this hasn't necessarily stopped Coley and her team from trying to educate law-makers about crypto and blockchain. This means breaking down the difficult technical language which often exists in blockchain into more practical, daily terms.

The conversation then turns to Bitcoin and what it brought to the table in terms of bringing the idea of peer-to-peer networks into digital finance, where no central entity would be able to control the flow of an exchange. Coley admits that she initially misunderstood what the point of Bitcoin was. From its lack of speed to its fee structure, it seemed to not be very useful for the very utility it was designed for. However, these inefficiencies don't necessarily mean that the network is worthless, since the foundation of it is the lack of central authority, not speed or cheapness in transaction. This is the strength of Bitcoin, its decentralized structural integrity as a solution to centralized finance.

The narrative around Bitcoin has certainly changed. Its initial selling point, as given by Satoshi Nakamoto's white paper, was its ability to transfer peer-to-peer without a central authority. Now, however, the nomenclature around Bitcoin has changed into it being “digital gold”. Coley believes that getting back to the initial idea of Bitcoin as a transfer of value is important, especially in light of COVID-19 and the global shutdown, with the United States sending stimulus packages to individual citizens and businesses. Bitcoin may be a better and more accessible solution for these types of situations than what is currently being used today.

But, just as money is used in almost every aspect of modern life, there could be many kinds of roles that Bitcoin and other digital assets could fulfill. This would include streaming micropayments to large sums that still need to be distributed around the world for things like big building projects. All things that normal fiat is used for, digital currencies can have a real world use-case for.

Because Bitcoin was born from a time where people saw how the federal reserve printed an unlimited amount of fiat (a situation being paralleled today), it was natural for its creator(s) to put a hard limit on the amount of Bitcoins that could ever be created (21 million). This may be the impetus behind labeling Bitcoin as digital gold. First, there is no real way to suddenly create a bunch of gold at a time. Second, it takes work and effort (thus money) to mine gold. These two factors make the asset less vulnerable to inflation. For Coley, she looks at ways to take the fundamental ideology behind Bitcoin, and how it could apply more practically or understandably for the general public. As she says,

Crypto doesn't have to be cryptic.

Part of the genius of Bitcoin seems to be a sort of cycle of incentives. Due to the cap on the total number of Bitcoins available, people are incentivized to get in early. But, as time goes on, Bitcoin becomes harder to 'mine' as well. This comes in the form of a 'halving”, in which the number of Bitcoins received as a reward for creating a block on the chain are reduced by half. These halving events are hardcoded into the structure of the network, so that as we get closer to having 21 million Bitcoins received, the more difficult it will be to obtain Bitcoin through mining.

This fundamental aspect of Bitcoin actually brings people into the principles of macro economics. As people come to understand it, they are basically receiving an education on various aspects of economics, from trade and exchange to the pros and cons of limited supply and variable supply. But because of the technicalities of crypto, there is so much to learn that there is a real difficulty here in educating the public. Both Schwartz and Coley admit that, even today, they feel like there is still so much more to learn and understand about the space, even with their all time spent in it so far.

Even so, educating the public about cryptocurrency often begins with helping people understand the normal foundations behind economics, and going from there to the benefits that crypto and blockchain can bring into the space. Coley makes the point here that, in today's 'social distancing' climate, people would have an easier time understanding why sending digital assets is superior to the need to physically move and touch fiat.

With the Bitcoin halving coming up in May, Coley argues that this time, there may be a different outcome than previous ones, where halving correlated with future increases in price. This difference would be that there is now far more mainstream attention focused on Bitcoin. Of course, everything here is speculative, as markets aren't really predictable. But with more education and more awareness, there may be demand for Bitcoin that, in conjunction with the halving, produces an inflated price.

Turning more towards the current pandemic and economic crisis, Coley states that, despite the general global shutdown, exchanges like Binance.US have not necessarily seen a disruption in day-to-day operation. This could illustrate the robustness of digital-based companies, and especially the security of cryptocurrencies in economic down-turns. Not being tied down to physical locations and physical assets gives people the ability to continue to do what they want or need in life, no matter external circumstances. Thus, for people who are looking at where next to go in life, she recommends taking a strong look at organizations which are digitally-based, and thus show more resiliency in real-world catastrophes.

She also recognizes that there are energy-wasting deficiencies that are affecting the natural environment in crypto. Like Blinder from the second episode, she sees this to be an important focus. However, there is an argument that, for the most part, crypto mining farms are in isolated areas, where energy is subsidized or the climate helps to reduce the waste required for the sites. But this still needs to be held in check, since those who can profit from increased mining may not hesitate to do so, even if it has negative consequences for the environment.

Winding down, when asked to speculate about the future vision for crypto, Coley shares a story about how she was able to send money to a friend across the world in almost no time. For her, to see that she could send that friend the money, and for that friend to then be able to go use that money immediately, impressed upon her the great potential this technology has. While the concept is extraordinarily simple, it was something that we couldn't do even a couple decades ago.

And now, it could be possible for everyone. By democratizing finances, Bitcoin and crypto has brought the idea of discussing money to the dinner table, where it no longer needs to be taboo, but helpful, informative, and opens the doors for all.

My Thoughts

There was a lot of the material from this episode which overlapped with previous ones, including energy efficiencies and mass adoption. That being said, there were still a few interesting points brought up during this third episode.

The Bitcoin Halving

Let's get this one out of the way first, since the halving has already happened. The 'prediction' that happened from the episode was that, because of a more mainstream focus on Bitcoin and its already high market cap, there may be a difference in what happens in the price than before. Most people who hold Bitcoin, of course, hope this would catalyze an even greater growth in the coin's price.

I think it's interesting to note, as linked above, that while a halving may have resulted in a small price dump immediately afterwards, the trend has always been an increase in price over the long term. So much so, that outside of the immediate dump, after a halving, the price of the coin never went back to those lower levels before the event occurred.

So, while historical trends are not a guarantee of future events, it's certainly interesting to see that each halving has always preceded a long term pump in price that have never returned back.

Regulation

Here is where I believe I actually differ from many people in regards to the relationship between regulation and the adoption and price of cryptocurrency. Looking around the XRP and Ripple subreddits, as well as different interviews with Ripple employees, it seems many are hopeful that clarity in regulation will finally open the way to mainstream adoption, and then to a heavier increase in price, on various cryptocurrencies.

And while I don't fully disagree with this sentiment, I don't believe that an increase in adoption of crypto requires clarity in regulation, and I certainly don't think regulatory clarity will automatically pump the price of any coin. First, the principle idea behind any economic value is supply and demand. If the supply of an asset is greater than demand, the price will decrease. If the demand is greater, then the price will increase. And so, if the demand to use any particular coin is greater than the supply of coins available, then prices for it will rise. Second, when we look at Bitcoin and Ethereum, their price increases aren't necessarily correlated with any kind of regulation, and they have certainly been successful in terms of adoption so far.

That being said, regulation in any space can certainly help encourage adoption. When businesses know and understand how they can use something legally, they will be able to better take advantage of that utility for themselves. Because of this, when the clarity comes, there could be an influx of businesses that use crypto and blockchain on a greater scale. But, if that influx doesn't bottle up the flow of supply for any particular coin, prices may never correlate with any sort of utility.

The Blend of Digital and Real

I really loved two other concepts Coley talked about during the interview. The first was the realization that companies which have a large digital component are less susceptible to economic downturns and catastrophes, like the pandemic we are now experiencing. The second was her story of sending money to a friend who could use it for something as simple as a burger moments later.

I think these two things really give us a glimpse of a future where the digital realm is much more integrated into the real world. I believe that as we see companies which have embraced digital technologies like blockchain and the Internet survive and even thrive through recessions and downturns, it will encourage other businesses to copy if they want to do the same.

And, in a very real way, blockchain-based systems give such an advantage to businesses. It gives them the ability to conduct business even when physical locations aren't available. It has the potential to disconnect businesses from dependency on other companies like Square or Paypal if they don't need or can't use them. And it can even help small businesses participate in a global economy, so that even if their local state or country isn't doing well, they can still benefit from others around the world.

Such a world, I believe, is one which is beneficial for everyone who can participate.