WBD022 Audio Transcription
Erik Voorhees on Shapeshift User Accounts and the Problem with ICOs
Interview date: Friday 22nd June
Note: the following is a transcription of my interview with Erik Voorhees. 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.
While touring Shapeshift around Europe, I had the chance to meet with Erik in London where we discussed his political and social views, problems with ICOs the latest on the many Shapeshift.
“Things like money, education and healthcare are super important, that is why governments shouldn’t be involved in them whatsoever.”
— Erik Voorhees
Interview Transcription
Peter McCormack: Hi, Erik. Welcome to London.
Erik Voorhees: Hi. Thanks for having me here.
Peter McCormack: So, you're on a European tour?
Erik Voorhees: Yeah. We have a number of ShapeShifters here throughout Europe. There are seven events that we're going to; I'm here for a few of them. It's our Europe tour, so we made like a band T-shirt which we've been distributing out, which has been fun, and yeah, right now we're in London.
Peter McCormack: So, you probably don't know, but I'm blocked by you on Twitter!
Erik Voorhees: You're blocked by me?
Peter McCormack: I'm blocked by you.
Erik Voorhees: You must have said some really mean things!
Peter McCormack: No, actually, it wasn't; it was back when the SegWit2x thing happened, and all I said to you was I think I was a bit surprised that you supported it, but in hindsight now, I think I understand a bit more. I don't think we need we go into it hugely now because it is in past, but what do you think of the fallout from that now because we are some time on?
Erik Voorhees: Yeah. I think, first thing is I'm glad SegWit is activated, so something material actually happened on Bitcoin and it moved forward; so, that's a win. I also think it's a win that the debate is over, and not because everyone agrees but because a lot of the people who wanted bigger blocks left for Cash.
A lot of the people who wanted bigger blocks wanted SegWit2x, but the bigger block failed so they've just dealt with it and moved on, still using Bitcoin. At this point, I think people spend maybe 5% of their time arguing about it instead of 80%, and so that means there's a lot more time to build and get back to the actual work.
Peter McCormack: What do you think of Cash; what are your opinions on it?
Erik Voorhees: I think on one hand, it's good that that thesis that Bitcoin should do all, or most of its scaling on chain, that that thesis can happen now so we can actually see whether that's useful. I don't personally hold much of it, and I don't think it will overcome Bitcoin itself, and frankly I think it's inferior without SegWit. So, I see it generally falling into more obscurity, but it could persist for a long time.
Peter McCormack: So my audience know a bit about you, I don't want to do the whole origin story, but a bit of your background, but more focused on your political or social or economic views because you are quite opinionated, just so people understand your background and where you come from in the crypto space.
Erik Voorhees: Yeah. Well, I'm one of the crazy people that actually thinks that cryptocurrency will overtake fiat some day and actually displace it in the market; so, I'm ideologically incentivised to see that happen. So, everything I do in the ecosystem is built on my desire for crypto to succeed and take over the world. Basically, I want people using a free market money rather than a fiat money and that's what motivates me.
Peter McCormack: What are your issues with the traditional monetary system; you talk about separation of money and state?
Erik Voorhees: Yeah. I don't think the government should handle much of anything, and something like money is far too important. So, things like money, education, healthcare, I think, are super important and that's why governments shouldn't be involved in them whatsoever.
I don't like the fact that people pretend there's a market-based economy and yet money itself, which is the most important good in an economy, is centrally controlled by a government; that seems antithetical to me. So, I want something to change and crypto, Bitcoin, was the first thing I ever saw that actually made that realistic.
Peter McCormack: How do you see the process of separating money and state; how do you foresee the future in it? I hear people talking about it and it sounds great, but how does it actually happen; does it start somewhere like Venezuela and spread?
Erik Voorhees: Well, it doesn't happen by people going to the voting booths and begging politicians to change how things work. I think it happens by people building a better tool and the world just marginally gravitating toward it over time.
So, Bitcoin is used for a tiny, tiny percentage of the world's transactions today and I think that percentage will grow over the next 20 years to the point where people start realising that it makes more sense to hold value in a form of money that doesn't get debased, that doesn't lose 3% of its value every single year over and over and over again, and which they can send anywhere instantly at a low cost. I think that will become obvious and useful to people over time and, eventually, fiat money will just look silly.
I think my daughter's generation and her children's generation will think it's very silly that people used to use pieces of paper with politicians' heads on them as a form of value and that that was cared about.
Peter McCormack: Do you know John Pfeffer of Pfeffer?
Erik Voorhees: Yeah. Actually, I met with him last night at dinner.
Peter McCormack: A great guy. He said to me, "In 1,000 years' time when we're all flying around in our Millennium Falcons, do you really think people are going to be digging up lumps of metal from the ground and transferring it round?"
Erik Voorhees: Yeah, or using paper because some group of politicians said that that's useful; it seems really silly.
Peter McCormack: So, it's been quite an interesting last 12 to 18 months, and you've been involved very early in the crypto space. What do you make of what's happened over the last 12 to 18 months? It's certainly been a movement of mainstream adoption.
Erik Voorhees: Yeah. Probably the most important theme or trend over the last 18 months was the ICO. So, the ability of any project anywhere to raise very large amounts of money from all over the world with very little friction is, I think, one of the killer use cases of crypto and blockchain technology. Now, most of those projects are very stupid and a lot of people are going to lose a lot of money on those stupid projects, but the mechanism of raising funds by any person from any other group of people is really powerful.
I think Ethereum itself was the best example of this, where you had this somewhat awkward 18‑year‑old guy with a Russian background and he had this incredible idea for a very sci-fi sounding pie-in-the-sky concept; I'm talking about Vitalik, of course. He would never have been able to raise money from a VC ever, that would never happen, yet he was able to raise $18 million and Ethereum got started and it's now worth many billions of dollars and is changing the world; that, I think, shows the power of token sales at their best.
Peter McCormack: So, you aren't anti-ICO then?
Erik Voorhees: No, not at all. Now, the caveat is, again, most of these projects are total crap; some of them are outright scams, some of them are people that just don't know what they're doing, and some of them will be good attempts that just fail because most projects in the world fail. So, most of it's crap, but that's okay; most start-ups are crap. The ability to start an experiment is really important, and ICOs have allowed that to happen on a level never before seen.
Peter McCormack: So, what project out there do you like then? You talk about this total crap, but what is it out there that you like; what have you seen?
Erik Voorhees: Well, I love Ethereum, for example. SALT I think is awesome, largely because I want to use it to be able to get fiat loans against my Bitcoin; I think that'll be a great service. I really love the prediction markets, I love some of the decentralised exchanges, and I love, there's another one call Mainframe, I think, which is a decentralised chat app; really excited about that one as well. So, there are a number of them.
Peter McCormack: Do you worry at all that there aren't many products actually being delivered and that's compounded by there are not many being used on mass scale at the moment?
Erik Voorhees: Yeah, that is the ultimate objective, but at the time we get to that, then it's done. Once you get to mass adoption of crypto products, you've won; that's the end goal. There were a lot of people in the early days of Bitcoin that said, "It'll never be used; it'll never recover from this bubble up to $30. Banks will never take it seriously; no one's actually going to use it for anything", and here we are today and the entire world is paying close attention to it.
It is worth hundreds of billions of dollars, there are 10 or 20 million users of Bitcoin around the world, and people are finding actual use cases for it. It's still very niche but it is growing, and I think that's been a really profound thing to actually see.
Peter McCormack: I split it in my mind into a few things that the market for exchanges is working very well, there are some very good exchanges; there's the market for using crypto for payments which works, different levels of speed; but the world of applications seems to not being delivered at the moment; I worry if the levels of money being raised is misaligning the incentives to actually go out and create something and deliver a product.
Erik Voorhees: Yeah, that's a totally fair point. To date, you can raise $20 million or $50 million with just an idea or a whitepaper and some shiny websites. I think those days will end; people will be more careful about where they invest their crypto. So, people will have to get further along into proof of concepts; there are only so many decentralised apps that don't really make sense before people stop investing in those and start looking for things that are actually consumer focused that will actually get mainstream adoption. So, we haven't seen much of that yet, but I'm happy to be patient.
Peter McCormack: Do you think everything needs to be decentralised?
Erik Voorhees: No. Decentralisation has a lot of trade-offs. It is far less efficient and basically, you do it in cases where something that you really need is trustlessness or the ability for non-trusted actors to work together in an anonymous manner, basically to build trust between parties that don't know or trust each other; so, money is a great example of why that's important.
I think there are some people in crypto that want to decentralise everything; they'll go to any website online and say, "Well, someone should build a decentralised version of that"; I think that's silly. But, in some cases, it's really important and so you'll see some decentralised apps that just take over the world, Bitcoin and Ethereum being the first two.
Peter McCormack: That's why I liked Polymath, in that it allows traditional businesses with centralised operations to raise money from the decentralised liquidity pool of crypto, yet I think a lot of these businesses don't really require decentralised blockchain applications; the databases are too slow and it's unrequired.
Erik Voorhees: Yeah, and I think companies should realise that hybrid models can work really well. So, a totally centralised company that looks very normal, has a normal bank account, has normal customers and a normal office can, at the same time, raise funds with an ICO, which is a decentralised process. That can work great; I think you'll see a lot more of that. Not every project has to be some magical decentralised platform.
Peter McCormack: I've seen you write a lot about the banks and the banking system; there's this contradictory position we're in where some people saying, "Crypto's going destroy the banks", and then other people are saying, "For crypto to grow, we need the banks". Where do you see this relationship?
Erik Voorhees: The truth is in the middle. Crypto won't destroy all banks, nor should it, but it will replace some of the things that banks do. I think it will make some banks probably fall apart or go away or get acquired because they're not growing anymore; but also, to the extent that we want crypto to take over the world, it needs to pull in more and more people, it needs to pull in companies, organisations, it needs to pull in talent and expertise.
The one thing that's exciting right now is that a lot of people that have been working in banking and working in finance are getting pulled away into crypto. They're more excited about it; a lot of them believe in the mission of what crypto's trying to do. The banks have always been able to just pay a higher salary and keep people from pursuing their dreams, but in crypto people make a lot of money now; there's a lot of money of floating around. So, crypto projects are actually able to offer competitive salaries, competitive compensation and people can follow their dreams doing it; that's a very compelling proposition, I think.
So, if I was a large bank, I'd be a little worried because anyone I would want to help me adapt to crypto would probably get sucked into the crypto world and I would lose them; I've seen this happen in many places.
Peter McCormack: If Coinbase gave me a debit or credit card, they're actually very similar to my bank account, but in some ways, quite a bit better.
Erik Voorhees: Yeah. Coinbase is very similar to a bank, and I don't say that to make fun of them; I think their role is very important and they are the most important bridge between the fiat and the crypto world, so I think they're doing a great job with that. But, yeah, they release a debit card and a credit card, why wouldn't anyone in crypto just use them as their bank? Ditch the normal banks and then you have a hybrid fiat/crypto world which is probably the next phase.
Peter McCormack: Right, so we had quite an interesting last year with prices; everyone does get excited by prices. Now, the market's cooled quite a bit; do you have any perspective on that? What mine is, is that I feel like we've lost a lot of use cases for spending crypto as a currency so, whatever people's opinion of them, the dark markets have started to go away because they've been closed down.
Erik Voorhees: Is that true?
Peter McCormack: Yeah, I was reading about it this week. So, two of the biggest ones were closed down and a lot of the dark market drug sellers have now moved to using chat apps and operating on chat apps, which I thought was quite interesting.
We've also had the likes of OpenBazaar and Yours.org say they've struggled with crypto payments, and with the movement for Bitcoin from being -- I think it did move from being a form of money to now more of a store of value, I feel like we've potentially taken a backwards step in it being used as a monetary item, and therefore we've had less transactions.
Erik Voorhees: Yeah. I think early on in Bitcoin, most or all of us thought that payments would lead it, that we just need to get merchant adoption and people will start using it for payments and then it would just grow from there. The payment side has just grown really slowly, and in some cases has actually regressed, and I think that's okay; it's an unexpected turn and what it might mean is simply that payments end up being the tail phase, that people don't use crypto for payments until they're already using it for other things and they already have it in their wallets.
No one should be thinking that you're going to go buy Bitcoin so that you can spend your Bitcoin in a place that you could have just bought in the first place; but if you already have crypto because you received it in some other transaction or for some other reason, then the appeal of using that to pay becomes bigger and bigger. So, I think payments will actually come at the tail end, not so much in the beginning, which I think most of us have been wrong about.
Peter McCormack: Right, so it needs to be more like a closed-loop system; if you're paid in crypto, you'll spend crypto?
Erik Voorhees: Yeah, or just to the extent that people play video games that are tokenised and they have items from these games that are tokenised and in the apps that these items exist, they can click a button and turn a World of Warcraft sword into a Bitcoin; that friction goes away and it starts to become very easy to turn those things into means of payment. But using credit card or banks to get into Bitcoin is a pain the ass, and then trying to get someone to do that so that they can make payment is unrealistic.
Peter McCormack: Right, okay. We've also heard a lot about, and people talk a lot about the flood of money that's going to be coming from institutional investors, yet it doesn't seem to be happening. What do you think is the hold up here; do you think it's down to custody?
Erik Voorhees: Well, it's also not a black and white thing. Institutions, family offices, hedge funds have been starting to trickle into crypto, and that's part of why there is this whole bubble over the last year; part of that money was them.
Those who have not yet, I think are largely worried about the custodian stuff. So, a family office that gets interested in this, they're like, "Cool, let's buy some Bitcoin; how do we do it?" The easiest way for them to do that is to just leave the money on an exchange; if they're irresponsible, that's what they'll do. But if they know what they're doing, then they need to have some other service, and there's just not a lot of good stuff. Coinbase is finally bringing on some products that'll cater to that group; I'm sure Circle's doing something similar. So, those tools are getting built, but also those tools are largely just for Bitcoin first.
So, any family office that wants a portfolio of the top ten digital assets has no real way to do it, and if they have to leave their Bitcoin with one solution and their Zcash with another and Dash at an exchange or whatever, then it causes a lot of risk; it's a kind of risk that they're not used to dealing with.
Peter McCormack: Could they use a Prism for it?
Erik Voorhees: Prism is still in closed beta, so no, not yet.
Peter McCormack: Is Prism a custody solution as well?
Erik Voorhees: No. Prism is not built for people holding a lot of value over an extended period of time; it's built for holding small to medium amounts of crypto portfolios over a few days to a few months, kind of period.
Peter McCormack: Right, okay. I'll come back to Prism. The other thing I wanted to ask you about is the state of legislation because I saw you tweet about how progressive Wyoming is and then, inversely, I didn't see your panel, but were you on a panel where you were discussing the BitLicense in New York?
Erik Voorhees: Yeah, with Jesse at Consensus?
Peter McCormack: Yeah. So, there's quite a contrast between what's happening state to state.
Erik Voorhees: Yes.
Peter McCormack: Obviously, you support the progressive states.
Erik Voorhees: They're polar opposites. So, New York came out three or four years ago with the BitLicense. The BitLicense, essentially, turns any crypto company into a bank. You have to follow many of the same policies and procedures. It is a 30- or 31-page application form, and when you actually fill it all out, after weeks and weeks and hundreds of thousands of dollars in legal bills trying to get it all together, the application is 1 to 300 pages in length with all the pieces that you have to attach and all the records and everything.
Peter McCormack: But there's a company you can go to to help you with that, right?
Erik Voorhees: Well, actually, no. You're talking about Ben Loski's company?
Peter McCormack: Yeah.
Erik Voorhees: Well, he got hired by Ripple, so he is now at Ripple full time.
Peter McCormack: Yeah, I did see that.
Erik Voorhees: What the hell is Ripple thinking? There's a crypto project that didn't need any more bad brand recognition, and then they go and hire Ben Loski. They have gone now so far away from what crypto is supposed to be that, I'm not going to lie, we've considered delisting them from our own site, because at some point you've got to just say, "Enough is enough". You hire a crook like Ben Loski, at what point is it unethical for us to keep supporting that asset? That's actually a question that we struggle with.
Peter McCormack: What's stopping you?
Erik Voorhees: It's still a popular asset, it's a popular coin, so just business reasons is one; and it starts to become a slippery slope, how many moral judgements should we be making? If we judge Ripple for one board member, should we be looking at every employee of every project? How far down that road do you go? It starts to get tricky, so we've abstained from doing that, but it's a thought.
Peter McCormack: Yeah, and I understand why. You must have listened to Laura Shin's episode with Ryan where they were discussing Ripple.
Erik Voorhees: No.
Peter McCormack: I think there's enough concern over it, right?
Erik Voorhees: Yeah.
Peter McCormack: Where is it Ripple; where is it XRP?
Erik Voorhees: Right. So, the concern basically is you have Ripple, the company, which has some good people, some great tech, they're building basically a faster bank payment network for banks. So, maybe make a bunch of money doing that and maybe that'll be better than what banks have today, so that's fine. Then there is XRP, which is the token, and as far as I can tell, XRP has no use in the banking network that they've building, no connection to it, there's no reason to hold XRP, they've become detached; they were more connected when Ripple first launched, XRP was a more important piece and they were trying to be more of a cryptocurrency, and they've just gone down the banking route.
Now, there's this asset worth billions of dollars that doesn't really do anything. You can use it for payments, but there are lots of cryptos you can use for payments so what's the long-term argument sustaining Ripple's price? I think it's going to collapse at some point and it's going to be a huge fiasco.
Peter McCormack: Do you not think they recognise their place in the market and they are almost non-crypto, and that actually they're probably a less scary proposition for traditional centralised institutions and banks?
Erik Voorhees: For sure; that's why they're doing it.
Peter McCormack: Therefore Ben Loski makes more sense.
Erik Voorhees: Yeah. If you're trying to suck up to a bunch of banks, who better to get on your board than someone like Ben Loski?
Peter McCormack: Yeah, who knows everybody.
Erik Voorhees: Sure. If you're going to just totally go down the path of the dark side and work with all the institutions that crypto was meant to supplant, Ben Loski's a great pick. But you also have XRP, which is one of the biggest cryptocurrencies, and what are you doing with it; at what point is it unethical for Ripple to perpetuate that coin? The implication of that coin is part of what they're building.
I wouldn't say that they're being fraudulent, but it's getting to an awkward position where something needs to happen; they need to explain what the plan is for XRP, and if there isn't one then the price of it is going to collapse and it's going to be really bad.
Peter McCormack: But isn't the argument though that XRP and Ripple are two separate entities?
Erik Voorhees: Well, you mean legal entities?
Peter McCormack: Yeah, legal entitles.
Erik Voorhees: That may be the case, but regardless of the legal structure, the technology that they're building is a banking network and the XRP token, as far as I can tell, is not used or needed in that banking network, so what is the point of XRP? Maybe they have an explanation for that and maybe I just need to google some more things.
Peter McCormack: I think you need a very tiny amount for each transaction; you have to burn a very tiny amount.
Erik Voorhees: I don't think you do.
Peter McCormack: Really?
Erik Voorhees: Yeah.
Peter McCormack: I thought they did.
Erik Voorhees: I'm not sure. I'm not an expert on Ripple, so someone could certainly prove me wrong on things.
Peter McCormack: All right. Well, listen, let's talk a bit about ShapeShift, what's happening. So, it's a product I use, actually.
Erik Voorhees: Thanks for being a customer. Is that where you buy all your Ripple?
Peter McCormack: No, I didn't buy any; I haven't bought Ripple for a long time. Did you know what I did buy on there, AOS; I bought a lot of AOS on there. The reason I've always liked ShapeShift is because I'm fundamentally lazy and it's a very easy product to use.
Conversely, because it's so easy to use and there's no registration and no sign-up, I also forget about it whereas all other products talk to me. So, that's my position with ShapeShift, but I have always liked it. Tell me, where are you at with ShapeShift; what's happening; what's the future; what are the messages you're getting out to people?
Erik Voorhees: Yeah. So, ShapeShift has gotten fairly big at this point; we're about 100 people. All throughout 2017, we were just trying to grow; we were trying to grow the technologies that it could handle, 10,000 or 20,000 transactions a day; we were growing the team, so just bringing in people and building out an actual organisation of people. Those were our challenges over 2017, and 2018, unfortunately, has largely been trying to navigate regulatory issues and, because we've gotten big and because the industry's gotten bigger and trying to figure out how to grow something in legal grey area is tricky.
So, we've spent a lot of resources and time based on regulatory matters, SEC-type stuff as well as transaction monitoring, those kinds of questions which many governments have strong feelings about; frankly, it's all been very depressing. The governments of the world really want people to spy on each other for them; I think that's really unethical and it's a contentious situation.
Peter McCormack: Knowing what I know about you, I can't see that being the kind of thing you'll ever accept.
Erik Voorhees: It becomes a hard question; if the question is the business has to be destroyed or we have to become more conservative, I wouldn't necessarily destroy everything, but it is a fight that I won't give up. So, if we have to give in one area, we will fight more strongly in another, and that's what we're looking into right now.
Peter McCormack: So, I guess, is one of the main regulatory issues you're coming against KYC, because you don't have KYC, right?
Erik Voorhees: Correct, yeah, and that's a big one. Under Swiss law, transactions that are less than CHF5,000 don't require it, and we're a Swiss company. Also, we're not handling money; also, we're not an exchange; also, we're not transmitting, because we're not sending it from one person to another person. So, there are a lot of nuanced arguments, but it's totally a grey area and it's difficult, and each jurisdiction's a little bit different.
Peter McCormack: Where are you having the most complications; is it with the US?
Erik Voorhees: It's always the US. The US is the biggest pain in the ass for any crypto business, I think. That's why a lot of companies just block the US entirely.
Peter McCormack: How much can you tell me about the actual specific issues you're being challenged with and that you are facing right now?
Erik Voorhees: I probably shouldn't go into details right now, but suffice to say that each regulator in the US, and there are, I don't know, 5 billion of them, they all claim jurisdiction on various things and so, because crypto blurs so many lines, you end up in a situation where a lot of regulations either don't apply or do apply and you don't know which it is; it gets into this big tangled mess. For example, we haven't added any new coins to the platform in six months, and this is all due to US SEC crap.
The SEC has been very unclear about which tokens are securities and which are not. They say they're being clear, but it's a bunch of bullshit. There are some tokens that are securities, there are some that are clearly not and there's a whole bunch of stuff in the middle, and they have not declared where that line will be drawn; if you need proof of this, you can go to most of the US law firms and try to get an opinion on whether a token is a security or not. At this point, most law firms won't even do the analysis. So, the law firms don't even feel comfortable enough to do legal review, which is their job, and it's a big problem. It won't last forever; something will have to give.
The SEC, obviously, has an interest in projecting as much jurisdiction and as much authority as they can, but they don't necessarily have all that jurisdiction under law. So, they have to be careful because, if they try to extend their reach too much and they get challenged, they could end up in a huge embarrassing lawsuit where they lose and they don't want to do that, their careers are on the line; so, it's a mess.
Peter McCormack: I guess, if you're not adding new tokens because of fear of whether it is a security, aren't you in a similar position where some of the ones you already posting are a security anyway?
Erik Voorhees: So, we don't take the position that any token is a security. We kind of read the tea leaves in all the things that the SEC has said and we try to say, "According to all these statements, which tokens are maybe a higher risk of being seen as a security by the SEC?" Some things we have already delisted, not because we felt like they were securities, but because we felt like there was too high a risk that the SEC would try to claim they were securities.
Just recently, finally, we've been able to add more assets outside the US. So, we've now bifurcated the asset list, and customers that are not in the US actually can get more assets than those that are in there in, which sucks. The ringfencing of the American financial system is just this macro theme that I think a lot of people do not realise; they don't realise that banks run the world, won't take US customers, because the reporting requirements and the regulatory risk is too big to them. Most Americans are just getting ringfenced into a financial system that they're not going to be able escape; crypto is really the only answer.
Peter McCormack: Do you not, therefore, see that maybe this is an opportunity for the SEC to rethink security regulations? So, it was all new to me, the whole credited investor thing, but that seems arbitrarily unfair.
Erik Voorhees: You mean requiring that you're rich before you can invest in start-up projects?
Peter McCormack: Yeah, because I know some stupid rich people and I know some very smart poor people.
Erik Voorhees: Yeah, it is a huge injustice that a poor person in the US is not permitted to invest in the very kind of enterprises that build the most wealth, and if the SEC wants to say that they are trying to look out for those people, then how do they feel about the lottery system?
The government is running the lottery system in most states in the US. That is obviously not an investment at all; it is gambling and you have a negative expected value, and poor people spend millions and millions of dollars a year gambling and losing all that money. The SEC doesn't seem to mind that and yet they will prevent those people from investing in start-up projects because they might lose their money in those projects. Meanwhile, if you're rich, you can invest in these projects. It's really unjust.
Peter McCormack: Am I right in thinking this originally came from the Great Depression in 1929; so many people lost their money, it's actually there's a fear that the government will have to bail out the whole country if too many people lose money in a crash?
Erik Voorhees: So, the Howey Test, which is generally the test that you use to figure out if something is a security or not, came from the 1930s, and the argument the SEC always uses is that they don't want people to get ripped off. The reason that's bullshit is because, if you commit fraud, that's illegal already; you don't need an SEC to make fraud illegal, it's just illegal. If you lie and deceive someone and steal their money in some investment scheme that wasn't real, the police should just go in and arrest you for fraud.
There's no reason the SEC should even exist whatsoever, yet they do and they make all these rules telling adults how they can interact with each other financially. It is the opposite of a free market; it's the opposite of what America is supposed to stand for, and it causes an immense amount of damage to the economy and to any one actually trying to build something new.
Peter McCormack: Right, okay. So, is KYC something that is likely to come to ShapeShift, because there is also a benefit to ShapeShift in that, if you also know your customers, you can talk to them? As I said to you before, Coinbase talk to me all the time, I never forget them; they talk to me on social media; they talk to me in an email; they talk to me in their app. I just think one of the things, as I've mentioned to you before, ShapeShift goes out of my radar sometimes and so is there a benefit --
Erik Voorhees: So, it's an interesting point. There is a benefit in having accounts that people can use because you can have a closer relationship with your customer, absolutely, and so we've considered that. Whether those would become mandatory or not is an open question; I would never want that to happen. If the regulatory risk got so high that I felt like it was the only path that would protect the company, and indeed the users of the company, then I might have to take that path, but it would suck.
Accounts should be optional; yes, there are benefits to them, but they should be optional. So, if it ever happened, it would be under duress; it would basically be us saying, "We're being forced by these guys with guns to do something that are our customers don't want, that we don't want and that we think is unethical", but that's par for the course. There are a lot of things that I have to do that I feel are unethical; I am forced, at gunpoint, to pay taxes, for example, which I think are unethical. I don't want to be giving money to an organisation that buys missiles and bombs brown people around the world; I don't want to be funding that and yet I'm forced to do it.
So, it is the reality that we live in this situation where most people want government to get involved in the lives of adults and tell them what to do and what not to do. Personally, I think it's unethical and I'm, unfortunately, in the minority.
Peter McCormack: Okay, I'm going to deviate a bit here then. Obviously, I had limited time to prepare today, but it's making me think about something I saw, the Free State Project; I'm assuming there's some alignment between what that is and what you're talking about here.
Erik Voorhees: Yeah. So, the Free State Project is an initiative to get 20,000 libertarians to move to New Hampshire; it's a long-going multi-decade thing. I actually had signed up for that and moved to New Hampshire back in 2011, and it was actually there that I learned about Bitcoin from another Free-Stater. But, when I discovered Bitcoin, I pretty much left the Free State Project, even though I very much still support that mission, similarly because Bitcoin, I felt, would deliver those objectives to a far greater scale and all over the world.
So, instead of spending the next 10 or 20 years fighting these fights just for one tiny little territory, I could spend the next 10 or 20 years fighting these fights and actually have a chance at liberating much of the world.
Peter McCormack: Right, okay. Well, that's a pretty big ambition. Do you see that just being delivered by what you are doing in terms of your business projects, or do you do things outside of that?
Erik Voorhees: Well, everything I do is crypto-related because I see crypto, Bitcoin in particular, and the usage of crypto as money instead of fiat, is the best way to actually limit and reduce the scope of government. If people are using crypto as their means of value storage and payments and as their money and their currency, governments are not able to inflate currency anymore, which is a big part of how they fund themselves. They tax, which everyone understands; they borrow, which just means taxing later; and then they print money, they debase currency. That third piece goes away in a world where cryptocurrency is widespread.
So, even if the entire cryptocurrency movement simply achieves the objective of removing one significant piece of the funding mechanising of government, I will feel like that has been a huge success.
Peter McCormack: Okay. I understand what you're saying, and it sounds great. Did I read you've exited most of your dollar; you're trying to operate as much in crypto as possible?
Erik Voorhees: Yeah, I have dollars, I'm not without dollars, but I prefer money that can't be created out of thin air, so I choose Bitcoin.
Peter McCormack: I think a lot of people would support you, I would, but I think it's easier the more crypto you have, so it's going to be easier for you. You were in crypto in the early days, you created Satoshi Dice, you sold that, so you can ride the swings and the volatility. I think for someone, like myself, it would be a lot harder because the volatility changes your life.
Erik Voorhees: Totally, yeah. I've never been one to advocate that people put all their value into crypto; I've advocated very much the opposite. Crypto is extremely volatile, extremely risky, experimental and you should just assume it's all going to go to zero. I've told people that since 2011, and it's been something I tell myself all the time. If you can accept that fact and accept that volatility and you're still interested in participating and having some kind of stake in it then go for it, but don't do it thinking it's a sure thing; you should think it's the opposite.
Peter McCormack: But I don't believe you think it will go to zero now. I think we've crossed.
Erik Voorhees: Yeah, at this point, any particular crypto could go to zero. You can find some zero day in any chain that takes it to zero, but the concept of a truly digital decentralised currency, I don't think that can die; that can't go to zero. So, even though any particular coin could, and if you have your funds in the coins that go to zero, you could lose it all, I think the idea will live forever and I don't think that could die at this point.
I think humanity has found a new tool that it can use to transact more freely with other. Just in the same way that the internet allowed people to communicate more freely with each other and humanity would never accept the internet going away, I don't think humanity will accept decentralised digital currencies going away.
Peter McCormack: No, I agree. It's funny, the longer I've spent working in crypto and the more I use it, the more I see the benefits. So, the amount of times I do though is quite limited but, for example, I pay my mining fees, I pay it to a guy in Washington from here, it just makes sense to pay by crypto; it's instant. He calls me up, he sends the invoice, five minutes later or ten minutes later, he's got the money. So, that makes sense.
But that makes sense for me because I work in a crypto world; I operate in a crypto world. I still struggle to help people, my standard normal friends with their normal jobs, to fully understand beyond a price speculative asset. How do we bridge that gap?
Erik Voorhees: It's the question that everyone's been asking the whole time. How do you get to mainstream adoption? I don't know that there is an answer for that other than time and letting it grow organically. There are 10 million to 20 million crypto users in the world at this point, so that's not at all mainstream but it's also not uncommon anymore.
On my way over here on the tube, I saw a crypto advertisement, and I heard a lady at the airport the other day just talking about Bitcoin; it's starting to become part of normal society. It's still very niche, but it's getting there and, as people become familiar with it, they will be more open to radical ideas, like taking some piece of their salary in crypto or being paid by someone at the bar in crypto, whereas they would have only accepted cash a year before. That stuff happens gradually at the margins but probably, one day, people will wake up and realise it's just normal and everyone's using it a little bit once in a while.
Peter McCormack: When I was researching my interview with Trevor from Polymath, what it seemed to me was that this is actually a very important use case; I was thinking that, as people start to buy things that exist on blockchains and want to invest in blockchains, that we have crypto base layers, like Ethereum, Bitcoin, and the fact they will need own it to interact with those technologies and those assets; that will drive the adoption. But I don't see it as crypto as much for going in to buy your coffee. Do you understand what I'm saying?
Erik Voorhees: Yeah. I think the physical coffee shop that everyone has this romantic notion of using to buy your coffee with Bitcoin at the coffee shop, I think that's going to be the last phase. It's useful for a lot of things, but today it's not great for that.
Peter McCormack: Okay. So, back to ShapeShift, sorry, we deviated there, what are the challenges that you're facing now outside of regulatory; what else are you facing?
Erik Voorhees: Well, just to be frank, having a company that grows to 100 people, it is just hard to have an organisation of that size that grows to 100 that quickly; a year ago, we were 20, and a year before that, we were 5.
Peter McCormack: So, you've middle management, HR?
Erik Voorhees: Well, those things start happening, and how do you do that? When you do that, you cause some other problems in order to solve these. I've come to appreciate the difficulty in just building an organisation, and I didn't really know what that meant before but I'm starting to; so, that's been a challenge itself. We're getting there. I love my team; they're an incredible group of people, and it's been a learning experience for all of us, because a lot of us had never been in these kind of positions before, building anything that this was this big or important.
Peter McCormack: I also noticed you bought KeepKey; that was quite an interesting acquisition.
Erik Voorhees: Yeah. About a year ago, we acquired KeepKey.
Peter McCormack: So, there's quite a natural fit between hardware wallets and having a form of exchange.
Erik Voorhees: Yeah. I've long wanted to provide the world a way to hold and convert their crypto without having custodial risk. I come from the Mt. Gox days and I've seen many of these exchanges go under, hundreds of millions of dollars have been lost and it is just so antithetical to how crypto should work, that everyone's just holding all their funds at this centralised place.
I don't fault those exchanges; they're important, and ShapeShift's model has its own drawbacks, but I think it's important that people have a way to hold and convert their assets without having to trust anyone or, at least, that the trust is very minimal. So, we're building a better interaction between Keepkey and ShapeShift so that you can hold your coins on the device and convert them easily and you never have to worry about having funds at some other party.
Peter McCormack: So, it almost feels decentralised.
Erik Voorhees: It's somewhat decentralised, yeah. The key management, the holding of the assets is decentralised; it's on all the devices around the world. ShapeShift is not decentralised but ShapeShift's period in which you have to trust is really tiny, just during the transaction. So, the net risk to the company of a hack or anything like that is just so small that it's negligible. We could get hacked and no customer money would be lost at all and, if it was, it would be so small that I could pay it out of my pocket. So, keep getting that trust as minimal as possible, I think, is a good goal of any crypto company.
Peter McCormack: Just to move for a second, how scary is the proposition of being hacked?
Erik Voorhees: We did get hacked in April 2016.
Peter McCormack: Right, okay. I didn't know that.
Erik Voorhees: Yeah, we wrote a whole piece about it, the whole story; it's called the Looting of the Fox if anyone wants to read it. Basically, it was an insider; we hired this guy to run our IT security, ironically, he was a total douchebag thief and ended up stealing several hundred thousand dollars of our assets. It wasn't enough to kill the company, but it was enough to be real scary.
When that happened, as horrible as it was and as vulnerable as you makes you feel when someone that you trusted betrays you on that level, it also validated the model; it also proved the point that, by building it in this way, we're protecting people, because not a single dollar of customer money was lost, and by not having accounts or registration, not a single piece of personal information was lost. So, in an age of the Target and Experian hacks of hundreds of millions of records of personal information are getting stolen, none of that got stolen at ShapeShift because it wasn't there and no money got stolen from customers at ShapeShift because it wasn't there.
Peter McCormack: It was just ShapeShift's money?
Erik Voorhees: It was our money; it was our own inventory, because we hold an inventory to serve the customer orders. So, he stole our money, and that was painful, but no customer money was lost.
Peter McCormack: What happened to him?
Erik Voorhees: Well, for all the claims that the government likes to make that they're here to protect us, we basically contacted the authorities, handed them all the evidence on a silver platter proving that it was this guy, we have logs and a few smoking guns, and we knew where he lived, we told them, gave everything that they needed to go arrest the guy and be the hero, and they didn't do it.
Peter McCormack: So, he just got away with it?
Erik Voorhees: Yeah. We haven't heard from him since; he's gone.
Peter McCormack: Wow, shocking!
Erik Voorhees: Yeah. Meanwhile, I pay $1 gazillion in tax money to this organisation, and the time I needed them to actually step up and do their most basic function, they totally failed me.
Peter McCormack: The present system that keeps a lot of non-violent people in prison.
Erik Voorhees: Yeah. You get caught with a little bit of white powder that you want to have a fun night with and you go to jail and sit in jail, but you rob hundreds of thousands of dollars from a company and we tell the police exactly who it is and they don't even care. I don't think it was a big enough robbery for them to care.
Peter McCormack: Right, okay, God. Okay, so back to KeepKey, what differs KeepKey from Ledger and Trezor?
Erik Voorhees: So, Ledger and Trezor are the two other large wallet providers, and I have to say both of those projects are great also. So, I think all three of the wallets are really good. KeepKey has some aesthetic reasons why I like it more; it has a bigger screen where you can see a full address of where you're sending to, but it's not materially better than either of the other wallets at this point.
Peter McCormack: Right, okay. So, they're all just pretty much the same?
Erik Voorhees: They're all great. I own all three; I love all three. All three companies are good.
Peter McCormack: I don't have a KeepKey; I do have the other two. I tend to prefer Ledger because I love the little map.
Erik Voorhees: Yeah. Ledger's done the best job and they have the most units sold, for sure; I think they've sold 1.2 million Ledgers worldwide, which is pretty cool.
Peter McCormack: Yeah, it is cool. I was only recently aware of KeepKey and I looked at it and thought, "Actually, it just looks sexy".
Erik Voorhees: It's really nice, it's a really nice device; that was one of the things that we liked about it. So, we have some catching up to do with Ledger, I'll admit that, but I think the competition's good and it's going to be a massive market for these things.
Peter McCormack: But that's just mainly marketing, right?
Erik Voorhees: No, I think their app is better. Some people find it more hard to use than KeepKey, but I think it looks nicer, and they also just released this new product which is really good, so they're definitely the leader of the pack at this point.
Peter McCormack: I do tend to find though that there isn't enough of a difference between Trezor and Ledger that, if Trezor supported more coins, I would probably just go with Trezor. Is the addition of new coins that complicated; is it big?
Erik Voorhees: It can be. So, the addition of new blockchains is generally complicated. KeepKey, actually, just two days ago, released ERC-20 support, so now you can have a whole bunch of different tokens on KeepKey; it took a long time to get that infrastructure.
Peter McCormack: You visually see them as separate and sell them as separate, because you can't do that with Ledger?
Erik Voorhees: Yeah, natively in the app; it's very cool. You can convert them in ShapeShift in the KeepKey app, so that's all cool. That took a long time to do and each new ERC-20 is easy now, but if we added another blockchain, if we added the new EOS blockchain, if it ever launches, that will be a big project to get to that work.
Peter McCormack: Right. So, conscious of time, the last thing I wanted to ask you about was Prism, just an update. So, I was aware of Prism a while back; if you can just tell people what Prism is and what the status is, because I know it's in beta but when do you think it'll be released?
Erik Voorhees: Yeah. So, Prism, we released into closed beta; we announced it about a year ago at Consensus, and it's still in closed beta. So, a lot of engineering behind the scenes has been happening, but the largest obstacle right now is, yet again, regulatory. So, the way that it's built, it's essentially creating smart contract-based derivatives to create these portfolios, and the technology's really cool; it basically allows you to have a trustless portfolio in which neither party can screw the other one.
It's arguably a swap in which there's no custodial risk, which is a huge, I would say, financial achievement and yet we're worried about regulations in the US from CFTCs who are trying to navigate that and figure out exactly what we need to do. If it wasn't for that, it would have been out months ago.
Peter McCormack: I remember hearing about it a long time ago. I think I heard you talk to Laura about it, and I've seen the visuals on the website and it does look pretty cool.
Erik Voorhees: It's cool; it's cool technology and I think it helps demonstrate that when you have programmable money, you can do all sorts of really interesting financial applications that Wall Street and the banks have not innovated in 100 years, and yet most of it gets caught up in this regulatory bullshit.
Peter McCormack: Yeah. Are there any other projects you guys are working on that you want us to be aware of?
Erik Voorhees: There is another one, but it's secret so it'll come out a little later this year.
Peter McCormack: Can you tell us what area it's in?
Erik Voorhees: No. It's a crypto project; I'll tell you that much.
Peter McCormack: I still assume, at some point, you will look into some kind of custody solution as well.
Erik Voorhees: We won't ever hold people's custody, so I'll say that much.
Peter McCormack: Okay. I think I know what that means. Okay, so just to wrap up, just tell us what you're up to over the next weeks, months, how people can get hold of you, what you want to hear people from.
Erik Voorhees: Yeah. On Twitter, @erikvoorhees; that's probably the best place to get in touch. I'm also erik@shapeshift.io email, and I will unblock you!
Peter McCormack: Thank you.
Erik Voorhees: I'm curious what tweet you said that made me block you.
Peter McCormack: I'll have to dig it out.
Erik Voorhees: I don't block many people; I've probably blocked ten people ever.
Peter McCormack: It was definitely during the SegWit2x and it was probably in my earlier Twitter days where I think maybe most people go through this where they get a little bit punchy and then you realise you should just calm down a bit; so, I'm little bit calmer these days. I think I said something about thinking the New York Agreement closed doors was bullshit, etc, and I was surprised.
Erik Voorhees: Something that vanilla wouldn't have caused it, so I'm curious.
Peter McCormack: We should dig it out.
Erik Voorhees: In any case, I really enjoyed the interview.
Peter McCormack: And I apologise!
Erik Voorhees: I will unblock you. Great questions today and thanks a lot for having me on the show.
Peter McCormack: Thank you.
Erik Voorhees: Cheers.
