Banking on Bitcoin Page #10

which is New York's

attempt to regulate

this scary new technology.

It's now law.

And he has announced

that he is leaving government

in order to set up his own

private consulting firm

to help companies navigate

financial regulations

such as the bitlicense

that he created.

So we essentially had this beautiful

new ecosystem being built,

and Ben lawsky comes by,

says, "I'm here

to protect consumers."

He builds a huge

wall around the thing,

and then he sits

outside the gate

charging people to get in.

This is the very definition

of crony capitalism,

and, for some reason,

Ben lawsky doesn't even see

anything wrong with that.

I think history

will not judge him

as favorably as he thinks.

So, um, yeah.

I've started up

my own consulting business.

It's been quite interesting.

Doing a lot of work

in the fintech space,

but also doing work with a

lot of traditional companies

in the financial services

world as well.

Ben lawsky's team at the dfs

that was working on

this bitlicense

and the bitcoin initiative

have all ended up

leaving the agency

and going to consulting firms

that are now working

on these issues.

Danny alter is going

to work for itbit

and Dana Syracuse

is going to work for

the consulting firm k2.

Itbit is particularly notable

because they were

the first to find a way

to partner with the dfs

to get licensed

to open their own

bitcoin exchange.

When this is over,

definitely going to leave

New York when I can.

Where I'm gonna go,

I don't know.

I think the bitcoin community

in New York is done with.

No, it doesn't foster

innovation here.

It's too difficult

to have a bitcoin company.

No banks will open up accounts.

You have the threat

of regulation,

and your high-profile

arrests

like myself and others.

No one wants to deal with it.

When did you first

start digging in on bitcoin?

Two, two and half years ago,

when I took over the foreign

exchange payments business

- at jp Morgan.

- So you probably had your mt. Gox,

bitinstant, you know,

Charlie and those guys.

It's interesting, almost none of

those guys are around anymore.

Two years ago

at all the major banks,

bitcoin was an afterthought.

It was kind of a... maybe in a

hallway kind of conversation

at the water cooler and now,

you know, even this week, I met

with one of the other major banks.

Everyone's got a bitcoin specialist,

at least one working group.

Kind of teams of people

who are trying to figure out

how to incorporate

the technology

into their existing operation.

Banks and institutions

associated with

the financial system

are really starting to recognize

that the payment system

underlying banking

could be made more efficient

by the application

of blockchain technologies.

The blockchain technology

underlying bitcoin

has become something that

a lot people are now

very, very interested in

for all kinds of other uses,

whether it's allowing for

derivatives to be transferred

or securities to be transferred,

or all manner of financial

instruments to be transferred

in complex, interesting ways.

I think different companies

are going to adopt

different strategies.

And it's gonna be

fascinating to watch

companies like

digital asset holdings,

blythe masters' company,

doing very,

very interesting work.

I didn't become aware of bitcoin

in any meaningful sense

until 2014,

late in the year,

and at the time,

my perspective was one

of skepticism, I would say.

Specifically because

the storyline that I heard

related very much

to cryptocurrency

as a potential medium

of exchange and store of value,

which is a valid debate

and application,

but it doesn't have

full extent of the power

that the underlying technology

has to achieve.

Blythe masters

is not just any banker.

She is this person

who I think is really seen

as being behind some of the

most problematic innovations

in the financial industry

over the last three decades.

Blythe is the one who's

essentially given credit

for creating

the credit default swap

which essentially provides a way

to bet on the default of a bond,

and the credit default swap

ended up taking this place

at the center

of the financial crisis

and these bets

that banks had made

against sub-prime

mortgages.

Blockchain technology eradicates

a significant amount

of inefficiency in the system,

and reduces costs.

It doesn't mean

that we are doing away

with the need for trust

in financial services at all.

Bitcoin was designed

to find a way

to circumvent wall street,

and what blythe masters is doing

is essentially

trying to find ways

to bring wall street

into bitcoin

and make it possible for them

to use this technology as well.

What the bankers seem to be

looking to do at this point

is create their own

private blockchain,

where their computers

are powering it.

Rather than

these anonymous miners,

they want control

over the system.

The banks are looking

at this incredibly wide array

of ways that

they might use this,

which include replacing

stock exchanges,

finding new ways

to originate loans,

finding new ways to move money

between countries,

and, of course,

that's going back

to the original idea of bitcoin,

but now it's happening within

these financial institutions

rather than outside it,

as bitcoin had imagined.

I have no problem

with the banking system

and the financial industry

co-opting bitcoin,

primarily because bitcoin

can't really be co-opted.

The fact that it's decentralized

means no one can control it,

no matter who they are

or how much money they have.

I think it's

all good for bitcoin.

I think all of the innovation

that's happening,

both on wall street

and in silicon valley

I think competition

will take care of

people who want to try

to have a monopoly,

or who want to try to charge

more than they should

for whatever product or service

that is happening

on the blockchain.

It really is as advertised.

It really is controlled by all

the people who are using it,

and it really is designed

just to be a more efficient,

more fair way of sending

value over the Internet.

Bitcoin is not neutral.

You cannot remove

the political component

that satoshi implanted

in bitcoin from bitcoin.

That's what a lot of the people

on the wall street side

try to do.

You cannot neutralize bitcoin.

It's impossible.

Thankfully, I'm gonna go to

a comfy federal prison camp

without fences, that has

pool tables and a track,

and baseball field

and decent food,

and kind of 100 to 200 people

that are white collar.

Those guys in prison are the

best ones to use bitcoin.

They're smart.

I'm very excited

to talk to them about it.

So yes, the vcs are

driving this thing right now.

They're pouring money into it.

They're building these

for-profit companies

people who have a background

outside of bitcoin

seeing the value of it

and coming to it.

But just because they're doing

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