From Investor to Philosopher, Jeffrey Wernick Believes Everybody Should be a Fan of Satoshi（Part 1）
Warning: it’s a super long article, get ready to become one of the few philosophers in the crypto world!
As an experienced investor, Jeffrey wernick invested in Uber and Airbnb, but now he got a new role as a bitcoin evangelist. At the “World Blockchain Conference”, 8btc got a chance to have an interview with Jeffrey. He talked about a lot of topics with us. To provide you with a better reading experience, we will separate the interview to two articles and outline the most thought-provoking points.
In this part, Jeffrey talked about bitcoin, its mysterious creator Satoshi, risks about bitcoin and blockchain as well as ICO.
About bitcoin: Bitcoin is the consequence of the failure of the existing institutions; it is nothing more valuable anyone can do than entering to the crypto world and trying to figure out how they can create a new economic organization.
About Satoshi: Everyone should be a fan of Satoshi; the greatest way to give anonymously; somebody with zero ego created a protocol worked to begin the motion, then disappeared. And it became the most successful “business” whatever you wanna refer to, currency, crypto, whatever.
About risks: The risk bitcoin faced with is centralization of hash power; while the risk blockchain faced with is centralization of design models and platforms themselves. Many blockchains are centralized. All they are doing is replicating the existing rule or order using a different currency; blockchain world is more about people seeking money than people embracing your philosophy. That’s why bitcoin the philosophy is there, nobody can mutate the philosophy except the miners.
About ICOs: Any fund sitting back and saying I want a big share of the deal and they go out to talk about the beauty of decentralization, they are just liars. What they want is to monopolize the platforms rather than enable adoption of crypto to have more people to have stakes in this game; I hope people can do as they say.
8btc: The first time when you started a company, you decided to build an employee-centered structure. This concept shares a lot in common with blockchain, why you choose to do so?
Jeffrey: Oh, I think at that point I wasn’t thinking about blockchain. It’s not a lot common with blockchain, because blockchain is more about bitcoin. But it’s more related with my philosophical principles.
I was very influenced by the work of Hayek, who was a friend of mine. I think Hayek was an unusual thinker, because he was not only an economist. Today there ’s field called like behavioral science, behavioral finance, behavioral economics, and behavioral law & economics. So this guy Danny Kahneman won a Nobel Prize for his work on people’s cognitive biases, and really a lot of this work was written by Hayek. He wrote a book called The Sensory Order. So Hayek wrote a law, a political science, he made references to biology.
What really captured me and my conversations with him was that he looked at that was the analogy of economics to biology. That is the evolving of organism. If you look at nature, nature evolves in a self-organizing fashion. There is no nature designer involved. It is the evolutional process. I really thought about that principle, and I never like hierarchy since I was very young. I like peer to peer relationships. So, when I thought about building a business, I thought of the type of relationship I wanted with my employees.
And at that point of time I was very introverted, so dealing with people was not easy for me. And I didn’t like tell people what to do. I wanted to come to an office where everybody was happy that people could basically organize themselves. I felt that if I can hire the right people, create the right incentive structure, then basically I was just a guide and a mentor to my employees, nothing more. I want them to figure out as many things as possible. What I wanted to make sure was that we all shared a vision together. And once we shared a vision together, then how it got executed was something that sort of evolved organically, like bitcoin evolved organically.
You can see the vision in Satoshi’s paper, but Satoshi didn’t do anything to advance bitcoin. Satoshi just issued a paper and mined some bitcoins, communicated with some people in emails and then disappeared. By the time when Satoshi disappeared, bitcoin was not worth very much. The evolution of where bitcoin is gone from what Satoshi did in the paper in 2008, and first production of bitcoin in 2009 to where it is here today has occurred without Satoshi’s participation in the process. It is all evolved organically. So that was kind of like my principle when I began my business, I want the business to evolve organically. I did not want the business to be about me, I want the business to be about everyone that work for me. I want it to be a complete flat structure because I want the information to flow well. I always think about how you create an organization with no friction. For me, the answer is a flat structure. With a flat structure, I thought everything will flow more smoothly. And that was sort of like my theoretical philosophical construct when I start my first company.
When I was 23 years old, I had a very strong sense of what my philosophical beliefs were. They basically unwove my whole life. The philosophical beliefs I held at 23, I continue to hold them at 62.
8btc: It seems like you are a big fan of Satoshi, right?
Jeffrey: Yes, I think everyone should be a fan of Satoshi. I mean, if you have looked at what Satoshi has accomplished whether Satoshi is a he, she or them is… you know, in history, we’ve never had somebody author a protocol, have that protocol go from zero to be worth a hundred billion dollars faster than anything else, and not grant themselves compensation, not work for compensation and disappear and make it completely about the design, not about themselves. So I think that is so unique. That’s how I tried to run my businesses, I didn’t really want them to be about me.
When I started to get a little bit publicity, I felt very uncomfortable. I liked talking to people and sharing knowledge. But I didn’t really like any sense of publicity. When I first started my company, there were a lot of articles about me in publications, especially the American Banker, I think they did about 6 stories on me over a 6-month period. When I was the front-page story each time, I told my partners if they asked me if I can do another interview, I would quit the business. Because I just didn’t like it.
I didn’t like the attention to myself, I wanted it to be about my work and not me. I wanted to be able to separate from what I had designed, because I’m not relevant, I want people to talk about my model. I didn’t like why do they have to conflate and knowing anything about me. The expression is the model, the model is relevant, not me.
The fact is that Satoshi has zero ego. It’s amazing. Somebody with zero ego created a protocol worked to begin the motion, then disappeared. And it became the most successful “business” whatever you want to refer to, currency, crypto, whatever. They got the valuation of a hundred billion dollars faster than anything else and completely organically. I don’t know anybody cannot admire it.
One of the things that shape me when I was very young and got exposed to is my identity as a Jew. I wanted to understand antisemitism, and I wanted to figure out how I can be a perfect person. So, I would read books about philosophers to seek moral perfection. Then I discovered in many the people who I read, they almost all committed suicide, so I say that maybe what I’ve learnt is don’t seek moral perfection, because you’ll never achieve it. I read a lot of Jewish literature, even though I’m not religious. I know Jewish law very well. There’s one of the most important Jewish scholars taught us, the greatest way to give is to give anonymously. So that concept of giving in such a selfless way and you don’t need any recognition from what you are doing is a very powerful concept.
The most things I do I tried to do within that framework. People interview with me will notice that I’ll never promote a project I’m doing. What I’m promoting is people to think deeper about things. What I’m hoping to do is to get people think about helping them guide them to be smarter, because I really want this “blockchain technology” whatever that term means, but the concept of decentralization that’s what I’m a missionary for. I believe so much in it, I’ve decided to basically sacrifice my privacy and anonymity that I’ve enjoyed most in my life, because I think there’s such an opportunity now that I’ve never experienced in my lifetime to really disrupt in a positive way, you know, the world. The world that’s evolving to its centralization way that I think is very dangerous. At some point, I have to say to myself, do my belief really stand for something? Or do I like to say the words to make myself feel better? Or am I willing to sacrifice something that is important to me. What I’ve done is that I sacrificed something I value most, which is my privacy in return for trying to advance the course of decentralization. So, for me it’s very philosophical. Many people who do not believe it may think I’m bullshitting, and many people think I’m bullshitting, but I really don’t care about them. I only know when I look myself in the mirror, I know I’m not bullshitting. That’s really what drives me and has me travel all over the places and work so many hours in a day. I know many people don’t believe in this either, but again I don’t care, I know there’s truth.
I’m really committed to seeing a decentralized world, a fairer world, a world where more relationships based on peer to peer, dealing with other people with equals, rather than hierarchical relationships. If you think about how fragile the world is because of the financial crisis in 2008, and the extraordinary measures we’ve taken to trying mitigate the consequences of that crisis is that, to me, that’s demonstration of how bad the current economic model is. We need a new paradigm. Socialism has failed, the type of capitalism has failed, so we need a new economical paradigm. That kind of new paradigm will still have property rights, but have value distributed very differently, and have a model based more on cooperation than hierarchy.
We’ve already tried this (old) one and it’s failed. It has created a lot of wealth for a few people, and it has lifted some people out of poverty, but you must look at what the cost is. The cost is that every country in the world has made promises that they’ll never be able to keep. All over the world, the government made medical, retirement insurance and all the social benefits, but the governments don’t have the money to fund. If they tax people in 100%, they still couldn’t cover the deficits. The system is so fragile and every institution knows it’s so fragile. A country would never have capital controls if things were not fragile. If things were not fragile, bitcoin would not exist. Bitcoin is the consequence of the failure of the existing institutions, people don’t trust any of the existing institutions any more. And it’s not the fault of crypto, it’s the fault of the institutions themselves. People get close to power and they make money for being close to power and that’s the universal concept. Every country, whatever their organization of government is, they are all pretty much the same. People want to get close to power and they want to get privilege to get close to power, and the system designed to reinforce that. Ultimately, many people will be left behind, and they are left behind not because they don’t create value, because they don’t have no capacity to claim the value they do create. I think that’s a very bad model. People should be more honest about acknowledging this is a bad model and should think about a new model, be open to embrace the fact that we should consider alternative models, and we should consider experimentation.
I don’t know what gives anyone the sense that they should be so proud of the existing structure, by what matrix they use to justify this is successful, except the numbers they create which are phony, like the economies are really recovering. If the economy is recovering, everybody’s life will be better off, everybody would be happy. But the reality is people are not happy.
Trump’s electrion as US President, Italy, Brexit, the problems with the Germany government over there, people aren’t happy. All over the world people are not happy, all over the world most people believe that their life is gonna be worse than their parents’ lives. So tell me what’s a bigger failure than almost everybody having the expectation that the best is in the past not in the future? This is the first generation of people that are pessimistic about the future. If you look at the unemployment from people, from college graduates, it’s never been higher in a long period of time. This is a tragedy. Some countries in Europe have 20%, 30%, 40% unemployment rate for people between 18 to 25. Like any business, and government is a business, what you want to do is to present the best circumstances. You’ll never reveal the truth, you’ll reveal the best story you can sell without being accused of slander or telling a lie. Their job is not to impart truth, they are not neutral, they have conflicts of interests. So given the fact that there are so many conflicts of interests, they want to tell the prettiest story. So they want to tell the best facts, and the worst facts they want to leave behind.
One third of the Americans lift pay check to pay check. One third of the Americans don’t have money more than 10,000 dollars in the savings account. What we gonna do in 30, 40 years when all these people retire with no savings? If you are working hard, you get a job to get you 50,000 to 80,000 dollars a year, your option is either to put the money on stocks market, hoping the bubble to continue forever, or you invest in fixed securities and pay no interest and whatsoever. So how do you accumulate any wealth by working on a job? How can you fund your retirement? Used to be compound interest can help you fund your retirement, because the interest rate of bank deposit was higher than inflation, used to be zero inflation and 3% interests on deposits. Now we have zero percent of deposits interests, 4% to 5% inflation. So now there is no return to savings any more. People are punished by savings, so everybody wants to go on debt to support a lifestyle. But then what could they do when they retire? This is just very sad circumstances. It’s a pity that nobody really examines the data and information in a more careful basis. Maybe people don’t because they don’t want to know the truth, because how ugly the truth is.
For me, I’m very committed to seeing us really helpfully provoke an alternative model. And we begin to embrace tokenization and decentralization. All governments have failed on their own currencies. Let us experiment without currencies. I think this is a great tremendous experiment. I embrace everybody that becomes part of this great experiment. I think that it is nothing more valuable anyone can do than entering to the crypto world and trying to figure out how they can create a new economic organization and economic structure. That’s pretty much what drives me.
8btc: Which single point make you to decide to become a believer of blockchain/bitcoin?
Jeffrey: To be clear, I’m not really a blockchain person, I’m a bitcoin person. My belief in decentralization and the government has no role in our money has been…umm, it’s a long story.
When I was in 5th grade, the teacher said that he wanted to have a class constitution. They formed a constitution committee. They chose 4 people to this committee, 2 boys and 2 girls. I was one of them. I went to the teacher and said that I wanted to read the US Constitution, so he helped me with it. When I read the US Constitution, I became interested in the Declaration of Independence and Thomas Jefferson. Can’t say if I in 5th grade really understood very much, but I became obsessed with the principles of the declaration and its author.
When we created the class constitution, what I understood from the document which the teacher explained to me is centralizing power. I couldn’t express in that way when I was in 5th grade, but I understood the concept. We created a class constitution where the class president had very limited authority and we tried to poll the principles as we understood them from reading the Constitution in the way the teacher explained to us.
As I got older, I wanted to read everything I could about the founding period of time. Because at that period of time, US constitution has no historical precedent except going to ancient Greek time. I’ve called democratic form of government, even though our constitution in United States is more accurately described as a constitutional republic of democracy. It is a constitutional republic. I would read all the founding files as I read all the federal papers and the empire federal papers because the first government in the US has failed after the revolution.
The US was governed by articles of confederation. There was no real country. There was confederation of states. And then what would have happened with the confederation of states and the relationship within the states was a little messy. But the biggest problem was that some of the leaders of the revolution were going around Europe begging for money to fight for the revolution. And they borrowed money from Belgium and other countries. And the European countries lent to the US government. That was no repaid after the revolution.
So basically, what participated you know the constitutional convention was the concerned that the government at the states would not be able to establish international credits because there was still the debt from fighting the revolution. So that’s why they pushed the economic program move.
Many people would say who Hamilton is. He is the one who created the bank of United States. He is the one who centralized the debt. The Federal government would be responsible for the debt while each of the individual state was some responsible for the debt. He can consolidate the debt, concentrated the debt and then gave the central government more power. Hamilton is the first Treasury Secretary. If you go to Washington and go to the department of Treasury, the sculpture in front is Albert Gallatin who was Secretary of Treasury under Thomas Jefferson. Gallatin is the first one to reduce the government and reduce the debt. Gallatin reversed the debt and began the reversal of process that was concluded by Andrew Jackson of killing the banking in United States.
I read that history and read Thomas Jefferson. He warned about the banking in the United States. And in the constitution, itself the dollar is the certain units of gold and silver. So basically, the federal government has nothing to do with the money creation process. There was a likin tax at that time. The US dollar was just the currency people use to pay tolls, another exercise tax but there is no likin tax until the beginning of about 1913 when a mandate was passed to adopt the likin tax. That period was really something that I read everything I can get my hands on to understand it. And the inversion to the centralization and the inversion to using government financing to enhance centralization. And the inversion to further using debt to enhance all that was very powerful message like everything I’ve learned from Jefferson.
If you read the end, the bake during the constitution was federalist and anti-federalist. So, there was anti-federalist papers. And the anti-federalist warned without constitution all these bad things would happen. If people read the anti-federalist papers they will see everything they predicted is what we live today. Whatever the federalist paper said defending the passing of constitution they prove to be wrong. You know they call the Supreme Court the least dangerous branch. They gave all this defense of how we would not have a strong president and they warned the defense of how liberty would be preserved. And they ended up with mock.
People who are against the constitution are reluctant to adopt the constitution. They said: If we start here we will not end up here. We will end up some places very different with where we start. And they prove to be right, which is why most education they don’t tell people to read the anti-federalist papers. They tell everyone to read the federalist papers because they want to brainwash people.
The last thing I want to do is to pay attention to what my teachers told me. I just want to learn and read what they did not want me to learn. I know that is the most interesting thing they did not want me to know. I was sort of precocious. Some teachers might tell me I was the worst experience to be a student in the classroom they have ever had.
We had this experiment in the movie. They take some students as wards and make some students prisoners. It turns out the wards are abusing prisoners. The more power you give to somebody, the more likely they will have the power abused. Every physiological experiment tends to show power gets abused and power corrupts absolutely. I think for most people in their life their most pleasant experiences they have are peer relationships, hanging out with friends. The peer relationships are what we enjoy the most. The peer relationships are we find the most satisfying. I could not articulate that every well when I was 9, 10 or 13 years old. But that is the thing that leads to my belief system.
Since I became an adult, I wanted to take a way and looked for ways of empowering ourselves and not being a victim of power structures that was imposed upon us by force. And since I see the US government is a very repressive government, even though many people would disagree with that, it is how I feel. Seeking to be a sovereign individual has been something of a lifelong mission of mine.
So, this is not overnight, this is consistent with a philosophy I’ve had since I was in elementary school.
8btc: Since bitcoin price skyrocketed last year, more and more institutional investors show up and want to seize this opportunity. How will these institutional investors affect cryptocurrency world?
Jeffrey: No, institutional investors cannot influence bitcoin. I actually embrace institutional investors coming to bitcoin and crypto.
Blockchain is different from bitcoin. The concern about blockchain is centralization of the hash power and Jihan Wu. The biggest threat to bitcoin is if we past 51% barrier, what potential power Jihan Wu had could destroy bitcoin by introducing double-spending problems into the ecosystem, they may let it to be counterfeited or invalidate bitcoins already produced. You’d hope that he would not have that incentives.
One of the bitcoin developers talked about his concern about that mining is so centralized. Unfortunately, whatever protocols you design, accumulating power is human attribute. You’ll always get people who like to accumulate power, and usually the most people who are most interested in power are either psychopath or sociopath. The average person doesn’t want to have a lot of power. The average person doesn’t want to manipulate a lot of people. The average person just wants to survive. They want to be able to have a decent home, they want to eat reasonably well, and they want to take decent vacations. So, to people who want a lot of control or power, you have to think about what drives them. I think it’s the worst in us that drives us have power, not the best of us.
To design a system with sufficient checks and balances that nobody from power emerges is a challenge. And even with bitcoin you can see the fact that Jihan Wu has so much hash power. If Jihan Wu really believed in decentralization things, Jihan Wu would not want to own 51%. We’ll not be out there trying to figure out how much hash power he owns to print as much money as possible even if it means corrupting. If not, Jihan Wu would say, I own 25% of the hash power, I’m satisfied with that, because I’m making enough money and I don’t want to destroy the goose that lays the golden eggs. I don’t know what his motivation is, but I’m always distressful with anyone who wants to have and seeks that type of power. And having want that type of power is inconsistent with what this whole things represents which is the absence of power. But again, clearly there’s some weakness in the design that created the circumstances with somebody now has emerged with potential a lot of power. We’ll have to see how other people whether they’ll form correlations just to make sure he doesn’t get 51%.
The institutions can only corrupt bitcoin by looking to own all the hash power and then counterfeiting bitcoin. But just to buy bitcoin they can’t disrupt it. They might be able to manipulate the price over short periods of time.
The problems with blockchain is different. Many blockchains are not decentralized. All they are doing is replicating the existing rule or order using a different currency. There’s nothing disruptive about saying I’m gonna build exactly the same model, but I’m gonna built it in crypto world or a tokenized world rather than a fiat world. But I’m gonna make the new world look exactly the same like the old world. I’m just using a different language and different currency, but other than that, nothing else has changed. My big concern is most platforms are pretty centralized in their nature. That game is basically that I want an ICO, so I wanna go to companies and give them special deals. I wanna give them the access, so many people will not have access to deals.
It’s funny when people talk about decentralized platforms. I don’t know how anyone who is raising money that would not accept everyone who wants to invest. For me, if I would do a platform, I basically just give everybody the same share at the same price, I wouldn’t lock people out. If some fund comes out and says I’m not interested unless you give me a big participation, anyone and any fund who says that clearly what they are doing is a direct contradiction of the philosophy. Any fund sitting back and saying I want a big share of the deal and they go out to talk about the beauty of decentralization, they are just liars.
What we need to do is to encourage people to enter crypto. What they want is to monopolize the platforms rather than enable adoption of crypto to have more people to have stakes in this game. We should welcome anyone who wants to come to the community. If some small fund comes out: I want to get the crypto, will you give me a piece of the deal. It’s not convince me that you are worthwhile. How can you say that you believe in decentralization while you are making centralized choices? If you believe in decentralization, live with the value you represent.
Bitcoin is not agnostic, but the other platforms are not sure of, because they have an author and I don’t know what their motivation is. It’s not about the technology, it’s about the author who’s using the technology to accomplish an objective. The only way I can make judgment about the author is their behavior, not their words. Their behavior is demonstrated by how they raise funds, how they market their product. What they say about blockchain and a bunch of things is irrelevant to me. If what they do and what they say are same, then I’m very happy. But most people in this industry, what they do and what they say are completely different. That’s the sad part to me.
There is a study that came out from a serious ICO research group, where they find 81% of the ICOs are scams and only 4% can possibly success. That basically means that most ICOs are shitcoins.
Most of the people off the record tell me they know that most of these projects make no sense whatsoever. People big names tell me maybe 85% or 90% (of the projects are failure), and some laugh and say maybe even more than that. They think it’s a joke, I don’t think it’s a joke.
If people really represent something, their action should be consistent with the philosophy. But now they just represent making money. If they are honest about it, people can make their own choices.
It seems to me that blockchain world is more about people seeking money than people embracing your philosophy. That’s why bitcoin the philosophy is there, nobody can mutate the philosophy except the miners.
What I want to do is hopefully people be honest about philosophy and then make sure everything they do is consistent with the philosophy they articulate, but not the words they coming out from their mouths. Their first step is how they raise money, that’s the first statement of what their values are. Do they give this count to some not others? How much do they facilitate pump and dump? What the lock-ups are like? Do they pay people in their own token, fiat or ETH or BTC? Those are all statements of themselves, their beliefs and their incentive structures. If they don’t align their incentives well, what makes you think they can design good incentive structures for everyone else? These are things that is really important to me, and sadly people don’t ask these questions. They just care about getting inside and get a lot of allocation, promoting it and executing it as quickly as possible. It is not the technology has a lot of problems, but the industry itself.
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