The dynamic cryptocurrency space would likely not be possible if not for the belief and work of Fred Ehrsam. He left his position as a Goldman Sachs trader in 2012 to combine his passions of computer science with gaming – and help set up Coinbase, the largest cryptocurrency exchange in the U.S. with Brian Armstrong. In 2017, he left the day-to-day operations at Coinbase to launch his own investment firm called Paradigm, also focused on blockchain. In this latest Bloomberg Studio 1.0, Ehrsam sits down with Emily Chang to discuss his early motivations, cryptocurrency volatility, and why he thinks crypto will be the most world-changing technology of the coming decades – creating a new form of money, financial system, and internet.
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Not long after Bitcoin was born. Fred IRSA became an analyst at
Goldman Sachs. The new mysterious digital currency had been

invented by Satoshi Nakamoto a pseudonym for a person or group
that wanted to circumvent the traditional banking system. On a

good day the price was beer sense and almost no one knew what it
was. But Ursa saw the potential. He bought it as much as he

could and found himself obsessively checking early
cryptocurrency exchange Mt. Gox and scouring Reddit threads

where he met another Bitcoin enthusiast Brian Armstrong as Mt.
Gox was hacked and going bankrupt. Armstrong and Ursa were

building Coinbase which would become the most mainstream place
to buy sell and store cryptocurrency in the United States. In

the span of a little more than a decade the crypto market went
from zero to more than two trillion dollars with some euphoric

highs and gut wrenching lows in between. Joining me on this
edition of Bloomberg Studio 1.0 to talk about that wild ride and

where it’s going next co-founder of Coinbase and the crypto
investment firm Paradigm. Fred Bergsten.

Take me to the very beginning of your crypto journey when you
were an analyst at Goldman Sachs. What was it that drove you to

this emerging technology. GS I think I was lucky because I had
three core ingredients to understand crypto. One was I was a

computer scientist an engineer by training. The second is at
Goldman. I was trading at specifically the euro and watching the

European debt crisis unfold every day watching the IMF give the
next tranche of bailouts to Greece seeing how the euro would

trade on that thinking hey maybe this isn’t working so well. And
the last is I was a hardcore gamer in high school. I was on the

best team in the world at a video game lived in these virtual
worlds that had virtual currency all the time. So that idea was

pretty natural to me.
And this was right around the time that Bitcoin came out on the

Internet. Around 2010 2011
and nights and weekends that I would just spend my time getting

further and further into it. Tell us about the moment when you
realized that this crypto thing was really something when the

world and your fans probably had no idea what was going on or
thought you were crazy. Well when we launched Coinbase in 2012

out of a
two bedroom apartment in San Francisco it did seem like a crazy

idea at the time. You walk down the street nobody would know
what Bitcoin was. Those people who knew about it probably

thought it was nuts. The literal advertise mint even on the
bitcoin sub right at the time was a bad Microsoft paint

painting of a wizard that said magical area of money. So very
very non obvious at the time. The thing though that really stood

out is the community was extremely strong even though it was
small.

And if you look to the early coin based numbers things grew
really well especially when we added the simple feature just to

buy and sell bitcoin. With any U.S. bank account with one click.
So while it seemed crazy to most outsiders at the time it was

clearly growing on the inside. And I think that’s even true in
crypto today. On some level you have

these kind of radical believers on the inside and then many
people on the outside who might still be touching the elephant

still trying to figure out exactly what’s going on here. How did
you meet Brian Armstrong co-founder of Coinbase and why did you

two set out to do
that. Well like any great crypto venture it started

decentralized in some sense. We met on Reddit on the Bitcoin sub
Reddit. He posted a prototype of an early version of Coinbase

and I emailed them. We met up at the now infamous creamery in
San Francisco which is sort of the like back in 2012 was the

place where everybody would would do meetings
and started working together 15 hours a day for four weeks.

Weekends included. It turned out people with a really cared
about building something in crypto that allowed the whole thing

to go mainstream. And at the time were you bought in like had
you invested your own money into this magical Internet money not

knowing what would happen. A Yeah I was fully bought in both
financially and career wise. I quit my job at Goldman and moved

out to the West Coast. Not even having a place to live.
Obviously I started working on Coinbase and then financially I

didn’t have very much money but the little money I did have
I invested in bitcoin. And

it’s funny. The most expensive thing I own today is still a car
I bought in 2012. I bought it for nineteen thousand dollars.

At the time bitcoin was about ten dollars. So an opportunity
cost terms. It’s about a 50 million dollar car. I still love the

car. But just to give us a sense for how expensive real world
goods are in bitcoin terms over time. You are at coinbase

co-founder until 2017.
You are president I believe at the time. And then you left. Why

did you leave.
A couple reasons. One I felt like the company was just a very

good spot. The second is. For much of cryptos history. So from
twenty 10 when Bitcoin sort of came out 2009 up until 2017

really the only idea that seemed possible in crypto was this
idea that it was a new global digital money.

And the thing that really changed in 2017 is all of a sudden the
door is opened to much broader applications. A theorem came on

the scene and showed that block chain based applications were
possible to build. And people were both building very early

versions of them. Today we know those things better as you fi or
these decentralized financial applications that live on the

block chain. And even more broadly I think over time we’ll see a
mainstream consumer apps and perhaps NF TS or weird bleeding

edge of exactly that.
So I found that that whole new frontier to be extremely

exciting. Coinbase is direct listing. It’s now a public company
was a huge moment for mainstream institutional adoption but it

still seems like so much of the world doesn’t get crypto. And
how big it can be. What do you think they’re missing.

The short answer is a lot.
I think look crypto is its own rabbit hole.

And just like any new powerful technology it’s extremely
powerful because it reimagine these very important systems that

run the world today from the ground up.
Most people primarily think about crypto again as a new digital

money.
That’s really works especially with Bitcoin as a store of value

where we’ve seen bitcoin go from zero to a trillion dollars in
market capitalization over the last 10 years.

But crypto goes much deeper than that. We think about crypto a
paradigm which is the investment firm ISE started along with not

one in three stages today. And of course this model will evolve
over time. The first is a new digital money. The second is if

the new financial system and the third is just a broad Internet
application platform.

So in our minds crypto isn’t just kind of this new digital money
or new digital gold.

It’s a whole new financial system that we’re seeing being built
from the ground up by talented entrepreneurs all around the

world. And while it’s extremely early on the Third Frontier a
new application platform we think that over. Over the course of

decades a lot of Internet applications that we’re all using will
also be crypto based. I’ve talked to investors who say Coinbase

could be the next AOL. It’s the first exchange that’s really
gone mainstream but it’s too early and others well or something

else will surpass it. What do you think.
I think it’s a fair question. I think history is yet to be

written.
My view is that it’s a very strong place to be to have the

largest mainstream brand trust
not only with users but also with regulators. And that being

that bridge into the crypto world is a great place to start. Now
as you mentioned you now run a crypto focused investment firm

called Paradigm. How is the crypto style of venture capital
different from traditional venture capital. Yeah.

Well I think in a few ways
just to talk about why we started Paradigm in the first place.

Myself and Matt Warren who was previously a partner at Sequoia
focused and running their crypto investing efforts.

We realized a couple of things. One crypto is a whole new field
that needs a 100 percent focus. The core question that Matt and

I asked ourselves and starting the firm is is there anybody out
there who if we were crypto entrepreneurs building a business

and Matt was a former Y Combinator startup founder I obviously
started a large crypto company and Coinbase who would we want to

have as our first backers. And we couldn’t really come up with a
good answer to that question.

The last is
I think the expertise required aired both on a team and

operationally in crypto is very different. So we’re really
trying to build a firm from an engineering and entrepreneurial

point of view to best support these crypto native companies and
protocols. The crypto Vichy landscape is getting now more

competitive. So where are you placing your bets. How do you stay
ahead of the curve. The thing we’re really excited about is a

number of fronts. One is the picks and shovels businesses. So
now that crypto has grown a lot. There are all sorts of basic

infrastructure businesses that are being built out to support
that ecosystem. Those of course include exchanges also

custodians tax providers KYC AML providers lenders cryptos back
is a service for any business that would like to integrate

crypto all sorts of these picks and shovels businesses. A second
big frontier as we talked about before is defy all of these

crypto native financial building blocks that are being built
out. And today support around seventy five billion dollars in

news or assets up from effectively zero three years ago.
And this is sort of the bleeding edge of what we see as a whole

series of crypto native applications.
The U.S. government has yet to really take a stand on crypto.

But President Biden’s FCC has made it clear that some sort of
stand is coming. What kind of regulation do you expect. I do

think that crypto is an nuanced issue and that it’s possible the
US gets crypto. Ron.

There were something like 4000 crypto currencies at the start of
the year I mean is that too many. Do you expect more.

It’s just like the Internet. People are going to try all sorts
of things that will be millions and millions of of crypto

currencies and crypto assets just like there are millions and
millions of websites. Most of them won’t work.

Especially early in the technology. There’s a lot of dedicated
communities out there and a lot of tribalism. Is that a good

thing. It’s an interesting question.
I think every new powerful techno buggy tends to feel very

polarizing at the beginning.
So I think some level of tribalism is inevitable

at paradigm. We think that we’re super early in this technology.
So getting too caught up in any singular view or belief or

paradigm no pun intended is probably unwise. What do you think
about Doge. Is it a hustle. Or do you give it more credit than

that. I think
we’ll perhaps framing it from Elian’s point of view and it’s

always dangerous to guess what’s going on in the mind of you on
of course if cryptos taught us anything. And it’s never to

dismiss a good meme that couldn’t later manifest into
more concrete progress.

I tend to think there’s less of that on the ground today more
holistically. I think whether it’s DOJ or more the NAFTA

phenomenon I do like that there are
there are a lot of things recently that I think have just

brought crypto to a much more mainstream awareness and audience.
One joke we often tell is

NAFTA made it really obvious that most crypto insiders sort of
were nerds that tended to care a lot about monetary theory or

the intricacies of the financial system. And what NAFTA is
really showed us is that a lot more people it turns out care

about culture music art. Basically everybody does. And that
that’s been a huge boon just for public awareness of what the

technology can do. OK but the NAFTA market kind of imploded over
the last few weeks. I mean sales in almost every category are

drying up like what’s happening there. Yeah volume is definitely
down. And again I think that’s natural. Just like the cycles in

crypto are I go so far as to say that 90 percent of NAFTA is
produced. They probably will have little to no value in three to

five years. You could say the same thing about early internet
companies in the late 90s too though.

It’s sort of inevitable in a new technology that people are
going to try a bunch of stuff. Most of it won’t work at the

beginning but the technology itself is really important and
really valuable over the long run. And there will be a few

things that end up being fundamental building blocks that really
do matter. I want to talk about regulation because the U.S.

government has yet to really take a stand on crypto. But
President Biden’s FCC has made it clear that some sort of stand

is coming. What kind of regulation do you expect. So I think the
US is that a very important crossroads with crypto today. The US

is blessed with the best currency and the world’s reserve
currency today.

It also tends to be the de facto financial regulator for a whole
bunch of the world.

We all also have a history of
being the strongest technology country in the world. If you look

at the most valuable companies in the world today most of them
are American Internet technology companies the Googles the

Microsoft the Facebook.
I do think

that crypto is an nuanced issue
and that it’s possible the US gets crypto wrong.

I think today you have a lot of regulators whose job it is to
mitigate risk and keep us all safe. And that’s that’s very

appropriate.
At the same time I think crypto is the next Internet sized

opportunity for the United States. I think it has the potential
to create as many if not more jobs in the Internet. Similar with

economic growth. I think it has the potential to square the
circle on the privacy Internet issues that we’ve been talking

about with big tech companies for the last 10 years.
Namely we could use these technologies to continue to own our

own data while still getting all the benefits of the Internet
platforms we know and love. Today China is taking a stand on

crypto. For better or for worse. And that’s also where most of
the mining is happening. Do you have concerns that China is

going to beat the US in crypto and that that’s kind of a big
deal. Yes. Yeah. And it’s on multiple fronts to your point. One

is
there are government programs to explicitly build using crypto.

This is true both with their DCP initiative which is basically
making a digital renminbi. It’s also true of local governments

who are trying to use block chain technology. And then to your
point is strictly most crypto mining has been in China

recently. There was actually a government crackdown in China on
mining oftentimes because energy was being siphoned from the

Chinese grid in ways that may or may not have been kosher. So I
think there’s actually a huge moment of opportunity today for

miners in the United States or globally to to step in and on the
crypto side to make it more decentralized.

And then if you want to view it from a nation state point of
view to make sure that no single country is in control.

The big promise of crypto is that it is the next iteration of
the Internet. How long until we get there to that future. We’re

headed into a world where both the users and creators don’t need
centralized platforms or institutions anymore.

There are folks out there who think crypto is a gimmick or a
Ponzi scheme or an unsafe hedge against inflation. What do you

think are the biggest myths about Chris Crypto that you want to
bust.

Oh geez. So many good ones. Or perhaps number one that crypto is
all about speculation.

I think all investment can be framed on some spectrum from it
from speculation to extremely long term holdings. And I think as

PE people get more comfortable with the idea of crypto and why
it is the superior money and store of value across all these

different dimensions of money whether it’s scarce to be
portability the visibility

that people are viewing it as a more long term holding in
addition to the fact that there is real utility for crypto being

built today all these financial services and new Internet
applications. A second big one of course is energy. This is one

of the hot topics no pun intended around crypto today. My net of
view of the issue is that it takes far more energy and resources

to protect and use physical assets than it does digital ones. So
does that mean you think the energy concerns raised by Bill

Gates and even Elon Musk are a red herring.
I think they should examine the issue more closely

and I think the industry hasn’t done the best job of making
legible exactly what’s going on here. So my personal view is

it’s actually going to be a lot more energy efficient to use
these digital systems of value transfer over time. But it’s

understandable that there’s a lot of confusion early especially
given the nature of crypto which is that it’s decentralized. So

nobody has all the information. In some sense as you said you
know crypto is the next Internet sized opportunity for the

United States and.
The big promise of crypto is that it is the next iteration of

the Internet that could free users from power and control of the
gatekeepers. Whether it’s the big banks whether it’s Google or

Facebook how long until we get there to that future that you
see. Well I think in very small ways we’re already there today

in the sense that you can own your own global permission this
money and you can be your own bank and crypto by simply

downloading free desktop software that anybody in the world can
run.

I think it will take decades and decades for all of the
applications to be rolled out around that base. So a full blown

financial system I think were probably one tenth of one percent
into what looks like in a crypto native form. Mainstream

applications I think were effectively at zero.
And that’s what we’re so excited about. A paradigm is watching

that whole space get built out and unfurl. So what does that
mean for the Googles and the Facebook. Do they disappear

someday. I think this is kind of like e-commerce where you know
the world doesn’t change overnight but you can see the seeds of

exponential growth occurring already.
So I do. I do think we will live in a future where for us to

coordinate we won’t need decentralized platforms today. That’s
already true of financial services in that in crypto you can be

your own bank. You don’t need a central institution to hold your
money anymore. I think that is true in the web application sense

where already today there are creators who are pushing their
work out over crypto rails from their own crypto wallet where

the social graph exists. Direct play on shame. You don’t need
Facebook or Twitter or Instagram

to have a follower graph. It just all happens right on the block
chain. I think that’s where we’re headed. We’re headed into a

world where both the users and creators don’t need centralized
platforms or institutions anymore. Take me out 10 20 or 50

years. How has Crypto changed the world. What’s different.
I think one thing people don’t yet fully grasp about crypto is

how in a world that is increasingly going digital. Your crypto
wallet is the entire representation of the digital you. So that

means it’s your bank account. It’s your online identity. It’s
your universal logon to every Internet application. It’s your

digital resumé sort of your digital LinkedIn. And all these
things are in one place. You can use your real identity. You can

use a pseudonym somewhere in between.
And I think perhaps said quite simply the future I think will

run on crypto rails. And I think it will be sort of the single
source of truth and coordination that all systems in the world

use today. Well we’ll have to check back in with you in 15 years
but hopefully sooner

rather than co-founder of Coinbase and Paradigm. Thank you so
much for joining us.