Welcome back to Cointelegraph China’s Focus talk show. This time around, Peter Vessenes is under the spotlight. He is the founder of CoinLab, the first venture-backed Bitcoin company. He also co-founded the Bitcoin Foundation, serving as its first executive director and chairman.
Vessenes has provided digital-currency consulting services for entities including the United States Treasury Department, the Financial Crimes Enforcement Network, the Department of Homeland Security and the FBI. He serves as the chief cryptographer for the Deluge Network and Metronome, a project that aims to create a “politics-free digital currency.”
Cointelegraph: You were the first one to have talked with the U.S. Treasury Department about Bitcoin. What is the story behind it, and what exactly did they discuss with you that first time?
Peter Vessenes: In the early days, governments were trying to get their heads around Bitcoin, and things were so decentralized it wasn't really clear who even to talk to. The Bitcoin Foundation filled that role for a while in a critical time in the industry's development. We were invited out originally to meet with FinCEN, which is the Anti-Money Laundering enforcement section of the Treasury Department, headed by Jennifer Shasky Calvery at that time.
They were most worried about and interested in the enforcement side of Bitcoin: knowing what was happening, who was doing what and so on. Ms. Calvery said something I'll never forget: "We think the toothpaste is out of the tube." She proceeded to explain her rough idea was to acknowledge they couldn't stop Bitcoin from being a thing, and they would try and work with already regulated entities at the on- and off-ramps for enforcement.
This, it turned out, was a really good strategy. It let some early Bitcoin businesses and funds get a commanding lead: Coinbase, Kraken and Pantera all had the regulatory space to work on business models without major fear.
I would say the SEC has done much worse by American business in the most recent round of innovation, regulating with a much heavier hand, and we see the results with exchanges like Binance worth billions of dollars, but staying out of the U.S.
CT: Many traditional companies are now working on cryptocurrency, but on the other hand, the Securities and Exchange Commission continues to place obstacles before the Libra stablecoin, and it hasn’t warmly welcomed crypto exchange-traded fund applicants, either. What is the exact problem you think the crypto companies need to solve? And what is the SEC or the government looking for?
PV: Government agencies that I've worked with are mostly concerned with serious enforcement worries, really objectionable activities, by which I mean things I wish I had never heard were happening and certainly will not repeat. I found this comforting. In 2012, it wasn't clear if there would be sort of “petty” enforcement in the U.S. outside of the SEC. In the U.S., we haven't seen much of that, although perhaps IRS subpoenas of Coinbase records come close.
In general, most agencies I've worked with were filled with good people working on good things, and they almost all — big secret — own crypto themselves.
As far as companies solving problems: financial inclusion, open access, destruction of rent-seeking behavior by long-standing financial industry participants — those are all pretty good goals. I'll give you a hint, though, and say that JPMorgan won't be destroying rent-seeking behavior, no matter how innovative its crypto group is.
SEC behavior is complex, and it's good to remember that the U.S. has multiple regulatory agencies overseeing complex financial products; the Commodity Futures Trading Commission is another. So, you have a mix of internal regulator incentives, including expanding their own remit vis-a-vis other agencies, American imperialism, etc., and then you also have some what I'd call "good" motivations, like protecting citizens from scams, Ponzi schemes and so on.
I think we'll continue to see real innovation happening in fits and starts in areas that are as lightly regulated as possible. It's just so very expensive, risky and time-consuming to try to innovate in America on the financial side. I really can't emphasize enough the benefits of a lighter regulatory regime for innovation. It's very important.
CT: The Bitcoin Foundation was one of the most prominent organizations in the ecosystem.
So, how do you see its failings with respect to its governance, transparency and finances?
PV: Leaving the Bitcoin Foundation was bittersweet. In the beginning, I wanted it to be a place that built the good brand reputation for Bitcoin globally and provided a venue for both industry and individuals to do some collective work together.
It was sweet because it was clear that my idea had been right: There was real demand to organize and work together. Bitter because I failed to bring the best quality leadership to the top of the organization. Two board members went to prison. A third had been accused of crimes, but not tried. I worked hard to try to clear out influencers that I thought shouldn't be there. But in the end, I couldn't keep the leadership at a level I felt good about and decided to leave.
There won't be another thing like the foundation in our industry, but I'm still glad I launched it with Gavin Andresen and would do it again, although I would change how we chose board leadership and make it more international from the very beginning.
CT: Regarding Mt. Gox, as previously reported, roughly 24,000 creditors are thought to have been affected by the 2011 hack and subsequent collapse in early 2014. It was said you own a stake of Mt Gox and you have submitted a $16 billion claim in the Mt. Gox civil rehabilitation, which is considered an obstacle for other creditors. Can you explain the issue here?
PV: Unfortunately, since we are still in litigation seven years later, I can't talk a lot. I will say that we have been diligently and aggressively pushing for a real trial this whole time so that we can get a fair ruling. It looks like we will be getting that trial in Tokyo this year, pending coronavirus slowdowns. So, that's great.
“Right now, all creditors — including us — are waiting on the trustee to make a payment plan that can be reviewed. Believe me, we would love to see one as much as any other creditor.”
We have had a fair amount of interest from investors and other creditors trying to buy into the lawsuit as a way to hedge out their own risks in the bankruptcy and ideally achieve good returns. So, we may look into providing access to the suit to a broader group of investors in the future, all still TBD.
CT: As a cryptographic expert, how do you summarize the technology development of blockchain in these 10 years? After proof-of-work, different consensus mechanisms have appeared, like proof-of-stake, delegated proof-of-stake, practical Byzantine fault tolerance,, etc. What do you think of them? And are there any projects that excite you with their technology?
PV: The last project that really got me excited technically was Ethereum. Not to say we haven't seen interesting innovation since then, but it was a massive leap over Bitcoin. We just closed a blockchain fund — Capital 6 Eagle — with my partner in China, and I can tell you what I'm investing in:
- Fundamental infrastructure that makes decentralized ledger technology faster and cheaper. We need two or three orders of magnitude faster tech. So, this will change things as it shows up.
- Stablecoin projects and asset tokenization technologies.
- Identity projects.
- Secure data on chains
- Wallet and other access infrastructure.
- Decentralized exchange technology.
A crazy paper last year that really got me thinking was the MAST paper out of Blockstream. They provided a way to have provable computation using only software. It's very, very slow, but the idea is profound and interesting for verifiability.
CT: You started to pay attention to smart contracts in 2014, and you set up New Alchemy in 2016. What is the main plan for you this year?
PV: I'm launching a new project that has been a secret so far, but this can be the announcement: It's a Bitcoin paper-currency project. Unlike some of the other hardware-wallet projects, we are working on having a chip embedded directly into a paper bill. We will have a series of announcements, but we are working with a major global currency producer and have an agreement with one of the best currency designers in the world to make these bills. It's just so very hard to deal with crypto, and I want to give access to regular people to have, hold and trade it.
Finally, we're working on launching a Shenzhen incubator, probably in the third quarter. So, that should be really exciting. I love the energy and pace of business in China and want to provide mentorship, capital and advice to another generation of Chinese entrepreneurs. So, that's really exciting.
CT: You are also interested in security token offerings. You said in 2018 that there would be a large circulation of STOs in the future, but they haven’t made much progress. What do you think about it now?
PV: On STOs: I was obviously wrong about timing, which is the same thing as being wrong. The difficulties in the last few years have been the intersection of the technology, the regulatory pace and the crash all together. Plus, early STOs offered in the U.S. were just bad offerings, poorly priced and definitely worse for the buyer than comparable publicly traded products or crypto products — or both.
But I do sort of stand by my prediction, too. Over the years, I believe more and more in the idea of permissionless innovation. STOs necessarily bridge regulated and unregulated worlds, and this is a really hard space because of that interaction. But, I still do believe that we will see tokenized offerings with regulatory oversight.
CT: One time you mentioned that you feel a “nostalgia” about the early times when Bitcoin was purely decentralized and only was mined by personal computers. Do you think that the modern ecosystem is the right way for the industry to develop?
PV: If I could wave a wand, I would definitely do away with industrial mining. It's a very hard problem to do away with, though. I think mining is not in a stable position right now, though. There will be more innovation on business models. For instance, during the BCH–BTC war, I thought it very interesting that companies like Coinbase used their user platforms to advocate for what they wanted. Why hadn't they invested in mining so that they could actually control voting on the outcome?
The answer to that question is at least partly regulatory, by the way, both for Coinbase and their investors, but it's also social; a matter of how different people think of mining. Miners have generally historically not used their influence for more than making money, or at least usually in very soft ways, and this is probably not quite what Satoshi wanted.
CT: In early 2018, you said that innovations in the industry should be measured by the question: “What percent of the total innovation that’s going to be done has been done?” And your answer was less than 5%. Do you think we are at the same stage now?
PV: I still think we have a lot of innovation left to do, and in fact, I wouldn't say anything super material has shown up in the last two years. We're seeing infrastructure build out right now, which is good. But we need another Vitalik and Gav, or we need one of them to pull a Linus Torvalds and do Git on top of Linux.
CT: What would you say to Satoshi Nakamoto if you were to meet?
PV: What makes you think I haven't?
To Satoshi, I'd say thank you, we got the leader we needed, luckily not the leader we deserved.