From Investor to Philosopher, Jeffrey Wernick Believes Everybody Should be a Fan of Satoshi（Part 2）
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 the controversial crypto EOS, crypto regulation, sharing economy, bitcoin price and crypto vs fiat.
About EOS: Most people don’t have the capacity to do due diligence; I would never tell somebody trust me, give me 4 billion dollars, this is not a reasonable ask; EOS is just a marketing success, not a technical success.
About crypto regulation: All regulators do is to deter innovation. They concentrate on profits, because they raise the barriers to entry. They don’t really protect investors; we’ll see money going to the wealthy, the young people will still in bad conditions.
About sharing economy: Airbnb and Uber are not sharing economy, because values are not being shared. What tokenization does, it converts every stakeholder into a claimholder. They might not have same value for claims, but everybody’s interest aligns; if we build an ecosystem where passengers get tokens, drivers get tokens, and anybody who participate the ecosystem can earn the tokens by contributing to the values of the ecosystem and they all share it. That’s a sharing economy.
About bitcoin price: Your timeframe should never be short term, at least 5 years. Five years from now it could be zero or I think at least $ 250,000. So if it survives, it’s gonna survive because the adoption has grown.
Crypto vs fiat: I think how the industry is evolved it’s not evolved as a threat to fiat; the only thing remain to be a threat of fiat is bitcoin; the governments all over the world are more welcoming on blockchain than they are on bitcoin. Because they understand the threat bitcoin has to the payment system. Blockchain can be a tool to enable further centralization, it can actually enhance centralization.
8btc: What is your opinion about EOS which triggers a lot controversy lately?
Jeffrey: For me, to invest in something is not just about if the technology works, if the business makes sense, it’s the values that underlying it.
If somebody comes to me and say to me: I want to sell you something. And asks me to see the token purchasing agreement. The token purchasing agreement basically says, one is that I’m telling you that I’m not making any warranties, so you have no abilities to rely any statement I make. I’m telling you the token might be worthless. I’m not telling you the token I’m developing actually works. And once you invest, you have to understand I have no responsibility. You are basically buying these assets with no warranty and no obligations for me to fix anything.
When you see all the people running EOS, shouting out to the moon and promoting it, I don’t know how many of them even read the token purchasing agreement, how many of them really understand the technology. People promoting something they don’t even understand or they haven’t read the document, how’s that a responsible behavior? I don’t wanna encourage irresponsible behavior.
By doing no due diligence, having no understanding, paying 4 billion dollars for something with the person selling it to me telling me it’s somewhat open source. It’s been out there for about a year. That year gave you the opportunity to do whatever due diligence you are going to do and you are on your own now.
I would think most people invested they almost do no due diligence on that. The challenge for them is to ask those people what due diligence they did, what expert do they hire, everybody who promoted it what they do to do due diligence on any of the stuff.
For me, anyone that comes to me and saying just buy it, I’m not guarantee anything and if it doesn’t work, you are responsible to fix it, not me. So make sure you spend all the time to validate it really works well. Once you’ve done it, and you are on you own, you can’t come back and complain to me. You have to make sure that you understand that the token might be worthless, the things might not work, but you are giving me the money anyway. If you’ve really done your homework, you understand what you’re doing, and you understand the fact that I actually have zero obligations.
But I don’t do business that way, because that basically says I’m more interested in money than principle. Once we abandon principles, what else do we have? If people just sit back and say the only principle is making money, then buy EOS. I don’t see many people will go out and really do business that way. But people do these platforms because they think it’s hot, they get promoted, they rely on some third parties and they don’t even know what due diligence that third party did. EOS might be the best multi-level marketing scheme.
I really respect how effective they are on creating value in the way they did it. I think that’s great skill they have, but for me, it’s an abomination anybody would raise capital that way and they will never get my money that way. And anybody wrote that check, I’ll fire them if they are my money managers unless they can demonstrate to me the level of due diligence. If they said, you know what, I hired this hacker, I spend all these money on this hacker, I tested this system and this is everything I did to demonstrate these claims are true, then if they did all of that, then I’ll say, ok you fulfill your obligations.
I wanna see everyone who invested money who can demonstrate they spend money on third parties to test the system to see whether it really worked. For me, if I don’t do due diligence myself and I don’t hire someone to do the due diligence, that’s an irresponsible way to do investing.
Again, what we are trying to innervate is the governance structures. We are trying to innervate how we interact with each other. Even if you don’t have the capacity to do due diligence, I’ll still give you the opportunity to do. For me, it’s perversion in the process. So again, because I’m principled, if it’s a perverse process, I don’t care what the product is. At the end of the day what makes the society operate is not the ends of the process. If you trust the process, on average you’ll get pretty good outcomes. If you are result-oriented, I don’t think that makes a pleasant world. I very much believe in process.
In old school banking, they used to say there was “cease of lending” in this order of priority: the first is the character of the borrower, the second is the competence of the borrower, the third is the cash flow of the borrower and the fourth is the collateral. The reality is if a business has collateral and it has capital, if there’s no character, you might never get claim to it. But now we just look at the collateral and forget about everything else, that’s why we have financial crisis, because we just lend and not even caring about the character any more. When you lend to somebody with a good character, they’ll pay you back to the best of their ability. If they go through hard times, they gotta sit back and have conversations with you face to face and you’re gonna work things out, they are gonna say I don’t feel good screwing you because you support me during good times, I’m there for bad times. Now it’s all about the contract and how everybody can use each words of the contract to screw each other. So character lending is still the best lending.
Most people don’t have the capacity to do due diligence and they (EOS team) are fully aware of that. So they were selling a story, because up to the last minute, they still have problems with their systems. Clearly nobody did due diligence. I would never tell somebody trust me, give me 4 billion dollars, this is not a reasonable ask. Nobody should ask anybody about that.
We should not do business that way. We should not do business saying, trust me, I want a billion-dollar profit, look at this team I have, look how wonderful we are. Just ask me and I’ll tell you how wonderful I am. I have a year to remind you how wonderful I am and I’m paying a whole bunch of other people to tell you how wonderful I am, and I’m airdropping tokens to other people to tell you how wonderful I am. So they build a whole network of sales people telling you building an oral of how wonderful they are.
I don’t want people to behave that way, we should share risks, we should have enough respect for each other. But they decided they’d better to have 4 billion dollars in their pocket. They could’ve kept the peace, they could’ve kept ongoing obligations and responsibilities, but they chose not to. And people decided with a year of marketing, they’ll brainwash them and thinking this is a way of creating enough enthusiasm that everybody thought they’ll make a lot of money. So that’s all people care about.
The 21 nodes have nothing to do with the technology but have something to do with optimizing the sale of supernodes. With all the games they design might actually work reasonably well, and it might have utility, but I don’t care about that. I care about how we interact with each other and the integrity will bring to the relationships.
I’ll not walk up to you and say, trust me, look at my background, I invested in Uber, so give me a billion dollars. This is just a marketing success, not a technical success.
8btc: People talk a lot about Central Bank-backed Digital Currency, what do you think about that?
Jeffrey: So digital fiat, what is the difference between digital fiat and paper fiat? I don’t like it. The government is now creating a fiat currency that is more traceable and trackable, so they can monitor you more with digital currency than paper money. If you exchange paper money, they can’t track it. If with digital currency, they can track everything you do.
Why do you need a central authority to issue a currency? That’s about enhancing control. Money should liberate us, not slave us. That (CBDC) is money for slavery, not liberation.
8btc: So you believe cryptocurrency will finally replace fiat?
Jeffrey: I doubt it, but I hope it. I think most people in the crypto world are not looking to replace fiat, they are looking to coexist with it, and they are looking to comply with KYC and AML. I think how the industry is evolved it’s not evolved as a threat to fiat. I think that the only thing remains to be a threat of fiat is bitcoin, which is why I think there’s so much focus on blockchain and so much diversion from bitcoin. That’s why people want to talk about blockchain, blockchain, blockchain.
The governments all over the world are more welcoming on blockchain than they are on bitcoin. Because they understand the threat bitcoin has to the payment system. Blockchain can be a tool to enable further centralization, it can actually enhance centralization.
There are not a lot of platforms working on privacy issues. EOS has no privacy protections. Therefore, they ultimately will lead to greater centralization.
When you take medicine, first they say this is what the medicine does, and they say don’t take this medicine if you have these problems, and they say these are the negative side effects of the medicine. We in this industry, we never think about the side effects, we never think about the negative consequences of what we are doing. We just sell the positive, we don’t tell the truth. So everybody when they develop something says if we use the tool, this is a good use of tool, but how can the tool be abused?
Every tool can be use and every tool can be abused. The work that Einstein did that led to the production of atomic bomb, also produce nucleus energy, and the framework for chips and computers. Some of the things are very useful and some are not useful, they end up being a personal choice. Tools themselves are agnostics, depends on how they are being used, the design will have an impact on what use is constrained or not constrained.
Everybody who designs something understands the potential for abusing a tool and what mechanism can they use to avoid the tool to be abused. So I don’t think people have thought that through. If they do, they are not honest about how they do it.
8btc: So you believe that technology is not the one to blame, right?
Jeffrey: I think people who sell technologies are to blame. I think people who want to dehumanize us and oversell the benefits of technology are to blame.
I had a conversation the other day of dinner with some guy who was talking about building an algorithm to basically have censorship on their platform. They want to censor about bad behavior. So I said explain to me what bad behavior is. He said it’s obvious, I said it’s not obvious to me. The technology can’t decide the bad behavior, whoever wrote the program did. The technology is just a language, it’s cold, it’s a language.
When you and I have conversation, we speak in one language. When you write software, it’s a different language, and each language has an author. And the words of the language, however they are expressed, expressed the values of their author, they don’t have a life independent to the author.
Life is fussy. To sit back and think life is black and white and think everything is zero and one, that nonsense. Life is complex, it’s messy and fussy. Circumstances and contexts matter. If we really want to have a sense of “justice”, we need to understand that frequently there are mitigating conditions. If we don’t understand all the circumstances, we can’t be fair and make judgments. So you can’t escape making judgments. Our capacity to make judgments, that’s what unique about human beings.
Computers and AI, there’s no such things called general intelligence. You can train machine to do recurring activities like you can do with human beings. There’s a book about how you become great at something, you become great through repetition. Michael Jordan went out and would shoot a thousand shots a day; the tennis players practice 8 hours a day. So anybody who’s great at sport practices day and night 365 days a year. That’s what makes them great.
Computers also do the same thing. They practice, practice and practice, and they are good at doing specific tasks. What computers can’t do is they don’t have general judgment or general intelligent. They only have specific intelligent. So why we want to render judgment making to machines which don’t have capacity to make judgment the way we have and can’t look at contexts the way we can? So I think these people who want take up data and control us and convince us that we are stupid, and they can design machine that is smart, we are not so stupid.
8btc: You know that regulators like SEC and CFTC want so much about crypto regulation. What do you think regulation can influence the cryptocurrency ecosystem?
Jeffrey: Create barriers to entry. I think regulation is bad. I mean I don’t like the scams and bad behavior, but ultimately regulation will only increase the cost. If we think about what happens during the early stages in crypto, there were a lot of money lost. And there’s more money been made by people who never would’ve made money in the rule of regulated world.
All the young people that got wealthy in crypto – if the SEC was involved – would’ve never got rich. So ultimately a lot more people got rich than got poor. And we brought a lot of people into the industry. So as messy it is, we bring a lot of talent. In the regulated world, we will see less innovation, we’ll see money going to the wealthy, the young people will still in bad conditions. Because they’ll never have access to this, the government will keep us away.
The most heavily regulated industry in the world are banks. How can we consistently have banking crisis all over the world? Why do we need to do this type of monetary policy all over the world? Because banks are broken everywhere of the world, there’s no industry that is more regulated than banks. So what’s the success story of regulation? Tell me a company that regulators spot as a fraud before the market did.
All regulators do is to deter innovation. They concentrate on profits, because they raise the barriers to entry. They don’t really protect investors. How can investors be protected by limiting their investment opportunities? And few investment opportunities they have are expensive and under-perform the market, and you call that a success?
At least to have the information available to every share holder of who’s doing what, just make it transparent. And then people can make their own judgments. If a manage team has a bad reputation, they’ll have trouble raising capital. So as long as people know, they can make decisions. But now people have the impression that you can stop insider trading but you are not, it’s rampant that nobody knows it. Then you’ll still have adverse consequences over it. So be better just letting people know what’s going on.
We now have delicate and unreliable agents, and that’s why this is the beginning of building platforms where we tried to build trust on, because we all know the agents have failed. People don’t believe in agents any more. It’s kind of curious that we tried to build platforms that replace the agents and the agents who have functioned so poorly want a pie of the platforms that designed to replace them because they screwed up.
8btc: Recently the cryptocurrency market is not in a good condition, the price went down and the spreading of FUD, do you have anything to say to the newbies?
Jeffrey: Look, when I first started, bitcoin was basically zero. Then it was under a dollar, and a few cents. Then about 2012 and 2013, it went up over a thousand. Then it went for two hundred to four hundred, four hundred to six hundred, then exploded in 2017.
I tell people don’t take 2017 too seriously. I was asked about the price forecast for 2017 at the end of 2016, I said I don’t like to forecast prices because you have to understand it’s very volatile. And you got to invest understanding it could go to zero.
Your timeframe should never be short term, at least 5 years. So I tell everybody don’t think about the short term, bitcoin if it’s around 5 years from now would be worth a lot more or zero.
Even for today, at $ 6400 (30th June) I just checked. Five years from now it could be zero or I think at least $ 250,000. So if it survives, it’s gonna survive because the adoption has grown. If the adoption doesn’t grow, it’s gonna die. So the key issue is adoption. And it’s a messy process.
I think actually in a perverse sense, all the shitcoins have hurt adoption because people keep promising. Bitcoin has fulfilled every promise it made, no other blockchain has fulfill these promises. The ability to discredit crypto has been enhanced by the proliferation of shitcoins. It’s hurting the ecosystem.
All the talent coming in will eventually help the ecosystem, but the short ones will hurt it. Because it’s easier to discredit it. And people don’t really understand the difference between blockchain platforms and bitcoin.
People may say bitcoin has failed because it’s not a payment, they’re just lack of understanding and misinformation, because there’s more confusion and a lot more noise. If there’s less noise, I think the community will be much more vibrant, and the adoption will be much broader than today. So I think it is the noise that is hurdling the adoption, and there’s more and more noise and less information. The noise to information ratio is getting worse not better. There’s more noise every day, and as the system evolves, you would hope to be less noise and more information. But now we are living in the opposite.
What I keep telling people about ethereum. The only value of ethereum is the currency for ICOs, it has no other utilities. And smart contracts can only be used for accepting money and giving tokens. We call it a smart contract. What does a smart contract do? We put money in it and release token, and that’s a smart contract. I think an escrow agent can do it also, and it’s pretty cheap to do that with escrow agents. The contract is not so smart. It’s a nice marketing term.
We need to think about this much more philosophically. We need thought leaders to say this is our vision and this is how blockchain fits in that vision. The answer is not blockchain technology, blockchain is just data structure. The nice thing about its distributed ledger which means no body controls the information and in theory it should be immutable. Nobody can modify it. That’s the beauty of it. The author of the ledger is a neutral party and validate everything that is going on and everybody can observe what’s going on.
We also need a whole bunch of other things around it, because the only thing which will lead to adoption is to build use cases. And when we have that story, then this industry is unstoppable. We need to have that success story. It’s not about tech, everything has to have a purpose. Everything has to solve a problem, and everybody has to think through what problems do they want to solve. Tech is just a means to an end.
8btc: Which blockchain use cases do you think will bring us the next Airbnb or Uber?
Jeffrey: It’s not the blockchain, it’s irrelevant. It’s the token economics. What I’m telling people is that Airbnb and Uber are not sharing economy, because values are not being shared. I’m sitting in somebody else’s car and taking me from some place to another, that’s not sharing. That is again is another marketing term.
If I’m the passenger, I’m just paying about the same price for a little better service; if I’m the driver, I’m getting poorer; and if I’m the investor, I’m getting richer. So is that sharing? There’s only small benefit to passengers, no real benefit to drivers except a lot of unemployed people who can’t find productive work started to do this. The world is not creating enough economic growth to get them better job opportunities, so they started to be drivers. Several years ago, when I asked Uber drivers how long they have been driving, they would say 3 to 5 years. Now most drivers I’m asking have been there a very short time.
So we need to build much decentralized platforms, because we need to acknowledge, allocate and distribute value much different than we do today. I heard somebody was doing a decentralized Uber both in the US and China, I haven’t seen the platforms, so I can’t say which one is better than the other. I just want the best design wins.
Every business should be decentralized. Everybody should be thinking of how we change the incentive structure. There’s a big issue in corporate governance, where we have a debate about how much responsibly a board has to shareholders and stakeholders. What tokenization does, it converts every stakeholder into a claimholder. So everybody is the owner of the business. So there’s no longer stakeholder claims, everybody has equal claims. They might not have same value for claims, but everybody’s interest is aligned.
If we build an ecosystem where passengers get tokens, drivers get tokens, and anybody who participate the ecosystem can earn the tokens by contributing to the values of the ecosystem and they all share it. That’s a sharing economy.
So this is the beginning of think about a real sharing economy and that’s where blockchain will find its place. The other thing that blockchain will find its place is social network platforms. We produce values with traditional social network platforms and they don’t share with us.
People should be aware of how much money Facebook has made from your data. Most people said, this is how much money I’m making for Facebook, I really think this is a good trade that I could put information on and they can make a billion dollars of my data and I’m giving a billion dollars value in return, I’m getting this exposure.
I think if I told most people about how much money Facebook makes of their data and asked them which do you prefer, the money or the access to Facebook? I think most people would say give me the money and forget about Facebook. But they don’t make it easy for you to quantify. You can’t call Facebook and say show me everything you’ve done with my information and how much money you have made of it. And it’s not just the money that makes of you, because if you speak to me, every interaction you do with me, they can capture it. They can make money of anyone else you contact. How much money do they make of you by directly and indirectly? If you ask them, they have the number. They do know, but they don’t tell you. Because if they did, there’s just no way will you continue saying that I value what you are doing from me more than the money you are making of me. You’ll change the relationship with them.
So the opportunity for us to do that is to take the ownership over the information we produce. And blockchain gives us the power for who we share with, and we only share with people that give us value and in return. Right now we share information and how it’s used and whether it’s valuable to us or not, we don’t make the money. What’s worse, it might not even create values for us. We are not the part of that process. So that to me is perverse.
Whenever I sell you something, I have to first say I own it and I have the right to sell it. If not, you can put me in jail for committing a fraud. The only thing that people can sell and don’t have to show their title is data and information. There’s no document says you’ve conveyed an ownership to Facebook. If somebody put up information on that platform that says “go kill somebody”, and you kill somebody, and Facebook says that’s not my information, that’s theirs. So on the one hand it’s theirs, but then they can sell them and it’s not theirs, and they keep the money.
I don’t know how somebody can sell something that’s not theirs and they pocket the money. There’s nothing in the document that say explicit about the fact that the title has been conveyed.
The most valuable things everybody produces every day is information. And yet they got no compensation for it, it’s used in a way that doesn’t benefit them. So the only way we can make sure that we get compensated and benefit from its use is that we begin to build a crypto platform on blockchain, then we’ll begin to control our own data. And then we can determine how we can use and share the data, but never surrender the title unless somebody gives us value in return for it and it should be very explicit and we can monitor it, we can order it, we can validate it and we can verify it.
So that’s another application I think that’s very important for blockchain. I think those types of things and abilities basically now see how we can use blockchain to begin monetize things that right now we really can’t monetize.
Click here to read part 1.