The Past, Present and Future of DeFi, Bitcoin, Blockchain, Cryptocurrency, and Ethereum
In January 2021, OODA CEO Matt Devost interviewed Camila Russo, the author of the book “The Infinite Machine: How an Army of Crypto-hackers Is Building the Next Internet with Ethereum”. Camila is also the founder of the Decentralized Finance (DeFi) site The Defiant, which tracks developments, emerging trends, and news in the fast-moving DeFi space.
In the interview, Camila shared how her experience covering fiat currency issues as a reporter for Bloomberg sparked her interest in Bitcoin and how she focused her attention on the Ethereum project early in its development. Camila’s book was one of our picks for the top 10 Security, Technology, and Business books of 2020.
In August of 2020, in the early months of the pandemic, Matt interviewed Bradley Rotter. Bradley is a visionary investor who has pioneered investments in many new alternative investments classes including having been an early backer of hedge funds in 1982 while speculating on the Chicago Mercantile Exchange. He was also an early investor in Bitcoin and other cryptocurrency ecosystems and at a dinner with OODA CEO Matt Devost in 2012 predicted Bitcoin would exceed the price of gold.
Bradley moved to San Francisco in mid-’80s to be close to the technology fountainhead of the Bay Area. In 1995 he was famously quoted saying “this internet thing is going to be big” and this vision guided his investments in several successful technology companies. Bradley has made numerous VC and PE investments, with a particular focus on the internet and technology and spanning from hedge funds to satellites.
We continue our effort to underscore certain patterns and themes found throughout the OODAcast library of over 80 conversations with leaders and decision-makers. Topics discussed in these OODAcast conversations include the emergence of Ethereum, interesting applications of Ethereum, and the general trends driving the DeFi space and cryptocurrencies.
“I was trying to build a diversified portfolio of non-correlated strategies.”
Matt Devost: So Bradley, why don’t you start by kind giving us your background? How did your career progress over the years?
Bradley Rotter: I didn’t start trading commodities until I was 16. I grew up on a farm in Iowa. After West Point and the army raced back to Chicago and I was one of the pioneers of a new asset class being developed at the time called financial futures. It kind of reminds me of cryptocurrency. Everybody was dismissive, thought it was unnecessary. I thought trading futures and derivatives on the largest commodity of all –money – would be a big deal. It turned out to be, it exploded and I was at the right place at the right time. I was on the floor of the Chicago Mercantile Exchange and the Chicago Board of Trade. Grown men yelling, kicking, screaming, shoving, and spitting. It was fabulous.
Rotter: As a result of some of those bets, I also pioneered another new asset class called hedge funds. I started investing in hedge funds starting in 1982 and seeding some with venture capital and starting in 1985 I concluded that the open outcry was archaic and inefficient. I thought the floors would go away. So, I loaded up the truck and moved to the west coast. I’ve been in San Francisco for the last 30 years involved in trading hedge funds and technology investing. Since 9/11, I’ve been a self-described impact investor. In my case, trying to impact the security of the Homeland. Because we have issues. So that is where I spend my time as I suit up in the morning and try to make an impact.
Devost: With regards to the early stage of hedge funds? What were some of the criteria that you were using for evaluation back then? Obviously, the industry was just emerging. What was the thought process around where you were deciding to deploy capital?
Rotter: I would look for other risk-takers that were had different styles in different markets than what I was focused on. I was primarily focused on the bond market. So, I would take money out of my account and give it to a guy that was just trading grains or just trading metals or just trading oil. In fact, now I think of it, I was Ray Dalio’s first customer when he opened Bridgewater. He had a fax service that was faxing out trade ideas and you would call him up and have them execute them for you. So I was trying to build a diversified portfolio of non-correlated strategies.
“The most dangerous weapon ever made doesn’t kill anybody. I find that very interesting to think about.”
Devost: I do want to talk a little bit about cryptocurrency and Bitcoin. You and I had dinner in San Francisco – I think it was late 2011, early 2012- in which I described to you that I had been mining Bitcoin to learn about it, to teach my students at Georgetown. And you said,” Hey, you need to hang on that. It’s going to be worth more than an ounce of gold someday”. And you know, we’re now at I don’t know what the current price is, maybe 5.5 X an ounce of gold per Bitcoin. So what, what led you to see what was emerging from a cryptocurrency/digital currency perspective and where do you think that is going in the future?
Rotter: I’ve been involved in the metals markets and FX and all kinds of currencies. I’ve always had the belief that money would change and that’s coming to be. The invention of Bitcoin, Satoshi Nakamoto whoever she is, really had a very important impact on how money is going to change. When I began, I was on actually my first podcast in 2013 with a podcaster named Michael Covel. And I made the insanely bold forecast that Bitcoin would be the highest returning asset of your lifetime. That was in 2013. And so far, so good. No one likes gold more than me, but Bitcoin actually has some superior attributes to gold. Try carrying your gold across a border and see what happens. And the fact is it is the only currency – that I know of and I study these kinds of things – it is the only currency that cannot be printed and that is the most unique aspect of it. You know, I, I was having this conversation this morning with a with an old gold trader and I told him because of that limited supply there is enough Bitcoin at this moment that every millionaire could buy one-third of a Bitcoin.
So that limited supply is rather interesting and will be interesting for the price. I mean, there are risks. The biggest risk that I worry about, and I was looking forward to talking about this, is EMP (electromagnetic pulse radiation). EMP would not destroy any Bitcoin, but it would destroy a lot of private keys, right? So that is something I think about a lot. I have Rotter’s Rule Number Sixty-Six: There has never, ever been a weapon ever made that was never, ever used. So we are likely, and Mark Weatherford agrees with this scenario, but we are likely to see an EMP attack in this country. The most dangerous weapon ever made doesn’t kill anybody. I find that very interesting to think about.
Devost: Yeah, yeah. It is interesting. You know as you mentioned, it’s not the currency itself – Bitcoin doesn’t go away – but the access to the keys is what goes away. And I am fascinated with the different ways in which you can store and transfer cryptocurrency as well. I mean, I have the open dimes where you can put it on a USB key. In fact, I gave my kids each for Christmas, a little miniature zero Halliburton briefcase with a one-ounce silver coin and then a hundred dollars worth of Bitcoin on an open dime. And I said, “I want you to track, over the course of your lifetime, which has more value over time.” So, an interesting experiment.
“After that [Ethereum] explosion in 2017, I was like: there has to be a book here somewhere.”
Devost: Camilla Russo is the author of one of my top 10 technologies security and business books of 2020 with her book, “The Infinite Machine: How an Army of Crypto-hackers Is Building the Next Internet with Ethereum”. I would love to start with just your background and how you came to be focused on the issue of Ethereum and blockchain?
Camila Russo: Of course. Well, first of all, thank you so much for inviting me and I’m honored to have made the top of your list. That’s awesome to hear. So, on my background. I am originally from Chile. Santiago. I’m a financial journalist. I started my journalism career in a newspaper there. Then came to the U.S. with hopes of being hired at a big media company. I went to journalism school at Northwestern and then did an internship at Bloomberg News and stayed at Bloomberg for the next eight years in different places. I started in New York, then in Argentina, then in Spain, and then back in New York. It was in Argentina where I first wrote about Bitcoin. This was 2013 it was Christina Fernandez’s second term.
There was 25% inflation in the country’s currency controls. I was a market reporter writing about how people were protecting against all this economic mismanagement. One of the stories was that they were using Bitcoin. And so after that, I was fascinated by crypto and when I was back in New York in 2017 I had another opportunity to write about the space and I became one of the few journalists there who were covering crypto kind of on a day to day basis and was just fascinated by it. At the end of 2017, I decided to pitch to write a book on the history of Ethereum. First, I decided that I wanted to find a book topic in crypto. After that [Ethereum] explosion in 2017, I was like: there has to be a book here somewhere.
And so the story of Bitcoin had been told pretty well, but I was amazed that really nobody had written the history of Ethereum. It is the second biggest cryptocurrency and it fueled much of the hype in 2017 with the initial coin offering (ICO) boom and all of that. So decided to do that and got the deal with Harper Collins and left [Bloomberg] early in 2019 to finish my book. I thought eight years in the same place was long enough and I wanted to do something on my own. So here we are.
“I think there are so many kinds of grand plans and ambitions in crypto and DeFi that a good kind of tool or signal I use is: is this just an announcement on the website or is the protocol actually really live and has users?”
Devost: So tell me a little bit about what you are up to new now with The Defiant.
Russo: So when I left Bloomberg in early 2019, I left with the idea to become an independent freelancer writing about tech and finance as soon as I filed the first draft of my book. But because I was kind of in the Ethereum community, I saw this really incredible ecosystem of financial applications being built on top of Ethereum and also saw that nobody was really paying much attention to it. Even crypto media were not covering it very well. So I saw an opportunity there to start a newsletter focusing on decentralized finance. So as soon as I turned in the first draft of my book a week later, I sent the first email of the defiant.
It was meant to be kind of a side project, but it ended up becoming kind of a full-time thing to cover the space day-to-day. So I started this newsletter on sub-stack. Then I realized people were willing to pay for my content, which was incredible. I had the Bloomberg name behind or, I guess, in front of all my content before. And so it was really scary to be out there and just like publishing all this stuff on my own. So it was huge validation to see that people were willing to pay for the content that I was putting out. So that was kind of the first sign that I was onto something and that this could turn into an actual business, like a media company.
So I made it my full-time job. At the time I was still finishing the book. So, I would write the book during the day and then write the newsletter in the evening and into the night. And then when I finally finished the book I I started doing a podcast with The Defiant, a YouTube channel, and now I publish the articles in the newsletter, they are published on The Defiant website. So, it has turned into a content platform with all these different channels and my own team of writers as well.
Devost: That’s excellent. You know, there is so much happening in this space. What mechanism do you use to prioritize what is newsworthy or what is worth covering?
Russo: It is a good question because there is just so much sometimes it’s hard to tell what is what’s worth covering and what’s not, I think it just comes from a lot of experience in being able to tell which teams have been in the industry for a long time or just organic excitement around a project. So when you see something mentioned by multiple sources that I trust that’s kind of a signal, like, this is something I should be covering. And basically, just by looking at raw numbers, is this attracting money? Is this attracting kind of volume? Are people actually using this? Is it live? You know, I think there are so many kinds of grand plans and ambitions in crypto and DeFi that a good kind of tool or signal I use is: is this just an announcement on the website or is the protocol actually really live and has users? I guess there are different kinds of things that I take into account before covering something, but yeah, it’s a lot to keep track of.
“The analogy I use is it is kind of like having a thousand golf foursomes playing universal best ball.”
Devost: So are there other cryptocurrencies that are on your radar screen or just implementations of blockchain technology that you are interested in?
Rotter: You know, the first alternative currency I bought was in 2013. I was giving a talk on Bitcoin and a young 14-year-old came up to the podium to chat me up. He was a fascinating young man. We went out for a drink, in this case, a diet Coke. And he said, “Mr. Rotter, you should take a look at the MaidSafe Network.” I said, “I’ll do that Jeremy”. That night I went home and started looking into this project. And a week later, I climbed on a plane to Troon, Scotland to meet the development team. MaidSafe had developed a distributed, decentralized peer-to-peer self-authenticating, self-managed network that is run on math and logic and all of the data is encrypted, sharded, sent around to the other nodes. And then the map of where your shards went is encrypted again. It is a fascinating project and it turned out to be a great investment. I’ve been out of it for a long time. The project’s still not live.
I was an early participant in a couple of unicorns. One was one was Wanchain. I’m heavily involved in a project called Cosmos. And, and some of the returns in this marketplace are unlike any asset class that I’ve seen. Cosmos has been a 40 X return in a couple of years. It is moving really, really quickly. Because of the money involved, this space attracted the finest minds around the world that we’re working on this project, and taking the gains – and what they learned – and working on other projects. The analogy I use is it is kind of like having a thousand golf foursomes playing universal best ball.
And so it has immense ramifications to supply chains. The blockchain really represents the first advancement in accounting theory in 200 years since double-entry accounting. This is triple-entry accounting. And so I’ve long said that if I’m right about cryptocurrency, banks will become as plentiful and as useful as Blockbuster video stores. I’m pretty sure I’m right on that. One of the most interesting projects that I am a seed investor in is a firm called IPWE, which is putting the world’s intellectual property system on the blockchain, signing up countries at a time. If you can get a patent on a blockchain, you can do things more easily that were really hard to do. Before you can license it, you can lease it, you can hypothecate, you can buy or sell it, you can build portfolios. So I think that probably permits the rise of a new asset class in intellectual property. We have always thought about it for years, but nobody’s done it. And this company has great potential, I believe.
Devost: Interesting. So it would be on the block and you could use that to define the rules. I mean, you could almost have it be a tree off, where the inventor could seek some of the reward associated with the patent by distributing it via the blockchain and having the linkage to the originating IP. Is that the model?
Rotter: Exactly. And they of course have artificial intelligence involved. They spent a ton of money building this model. The AI can actually look at the entire framework of a pool of patents and figure and evaluate them, which means you could price them and allow borrowing against intellectual property. That’s now stranded on a company’s balance sheets as intangibles. So, they will be able to evaluate and lend against that. That is interesting. The AI can look at a portfolio and see where the holes are of what is missing.
Devost: I would love for AI to just go and find the applicable licensees for my patent because I mean, that’s the part that is so labor-intensive, right? To understand who might be using the technology in your patent, you could initiate a dialogue with them or even automate the process.
Rotter: That’s what they’re doing. I’ve always said I could use a little artificial intelligence.
“…the user will not really recognize that they are using Ethereum in the background. And it will just be a better experience for everyone.”
Devost: Prediction is always hard in a space that is moving as fast as this space. But, where do you see things going? What is your outlook on say the next five years? What do you think we need to be ready for by way of disruption?
Russo: So obviously, right now [January 2021) we are in a bull market. Everyone is super optimistic. I’m not sure where the price is going, this thing may pop and fall. And we are back in a bear market again for two years. Who knows? But I have become convinced that this technology is here to stay, albeit with a lot of volatility throughout its ascent. So, I think the overall trend of Ethereum, Bitcoin, and of legitimate projects will be up in terms of disruption. I cover decentralized finance. Every day I also use it. I test all these protocols. And, to me, it is just so clear that this is a better system than the old one.
Traditional finance is using an infrastructure that was created in the 1970s that simply isn’t made to transact value. It is a messaging system, like what banks use to transfer money between each other. They are not as value-driven. They are not money networks. They are messaging networks. And you also just compare how far we have come with communications with the internet, how we are able to have this video chat in real time, we are sitting in different places of the world. We’re able to just like send gifts and chat and like all these things through the internet, but you compare that with how money works and money has been lagging behind all technological development for too long. And seeing how DeFi works for me, you know, that is a lot closer to how I think money should be working – in this open seamless, instant way without having intermediaries, without having to pay extra fees.
And it is just more fun and just more creative. You see developers coming up with crazy ideas and having food-themed coins and just more creativity, more innovation than you have ever seen in traditional financial markets. So, to me, there is no question that DeFi will continue growing. And I see it becoming just a part of FinTech. Like I see DeFi growing into becoming just finance at some point. I think there will be an increasing number of bridges between FinTech applications and DeFi to the point that the user will not really recognize that they are using Ethereum in the background. And it will just be a better experience for everyone.
Devost: Excellent. That’s insightful. I tend to agree. To me, it seems like an inevitable future, but it is hard to predict timeframes. I’ve felt like that for quite some time – even before the emergence of Bitcoin.
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