- Linda and Avichal are experts in the crypto space, with experience in hedge funds and investing.
- They provide definitions of blockchain and smart contracts, emphasizing decentralization and programmable logic.
- They discuss the four core concepts in the crypto space: blockchain, consensus, token economics, and smart contracts.
- Use cases for blockchain technology include decentralized exchanges, collectibles (such as digital cats), programmable money, distributed compute, and distributed apps.
- They predict that decentralized exchanges and collectibles will go mainstream in the next few years, while distributed apps may take longer to gain widespread adoption.
- Scaling issues, such as high transaction fees and slow processing times, need to be addressed before widespread adoption can occur.
- They mention specific scaling solutions being worked on, such as state channels and Plasma.
- The timeline for mainstream adoption of distributed apps is estimated to be around 3 to 10 years, depending on the expert's perspective.

- Truebits is working on off-chain computations for Ethereum blockchain to avoid complex computations on the blockchain itself
- Truebits has a concept where errors are forced in the network and those who catch the errors get compensated
- The early ideas for decentralized apps will likely resemble existing popular apps, but new native ideas will emerge over time
- Cryptocurrencies and decentralized apps may have more impact in countries with underserved markets or weak financial infrastructure
- Silicon Valley is a hub for innovation in the crypto space, but other hubs are emerging globally
- Governance and regulation can affect the growth of decentralized app hubs, and tax incentives and regulations can influence market movement
- The US government has been measured and smart in its approach to regulating cryptocurrencies and decentralized apps
- Compliance with SEC regulations is important for security tokens, but not all tokens are the same and should be distinguished accordingly.

- The government's role in protecting investors from scams in the cryptocurrency market is being questioned.
- Crowdfunding regulations are changing to prevent scams and protect investors.
- It is important to prevent scams in the ICO market and for the community to call out fraudulent projects.
- Opportunities in the cryptocurrency market include developing identity and reputation systems, decentralized governance, scaling solutions, financial infrastructure, and dev tooling.
- Early use cases in the market include gaming and collectibles.
- ICOs have raised billions of dollars, shifting the paradigm for fundraising.
- Expectations for companies that raise large amounts of money through ICOs vary, from utility tokens to donations to foundations.

- The regulatory side of cryptocurrency projects is uncertain and will be interesting to see how it develops in the next 12 months.
- Some projects have raised excessive amounts of money through ICOs and are not equipped to handle it.
- It is recommended to work with lawyers who understand the space when conducting a token sale.
- Founders are advised to consider traditional equity routes instead of token sales, unless it is necessary.
- Vesting schedules for tokens and employees are important to align incentives and prevent early investors from flipping coins.
- It is suggested to raise funds in series and lock them up until certain milestones are reached.
- It is important to consider who the investors are and what value they bring to the company.
- Mandatory privacy in transactions is preferred over optional privacy in order to protect user information and avoid suspicion.

- The video discusses the importance of default privacy in cryptocurrencies and the need to demonstrate the practical use cases for it.
- Examples of these use cases include protecting personal financial information, supporting marginalized communities, and safeguarding against governments with questionable intentions.
- The concept of selective transparency is also mentioned, where individuals can share view keys to allow certain parties to view their transactions.
- The potential risks of governments fully embracing cryptocurrencies are highlighted, particularly in terms of compromising privacy and making trade-offs between security and privacy.
- The video also explores the potential benefits of governments adopting cryptocurrencies in a positive way, such as improving efficiency in various sectors.
- The importance of user-friendly onboarding ramps, like Coinbase, for cryptocurrency adoption is mentioned.
- The role of decentralized oracles, such as Augur, in decision-making processes is discussed, particularly in prediction markets and policy-making.
- The idea that many people will be onboarded into cryptocurrencies without realizing it is presented, as crypto becomes integrated into various industries and services.
- The comparison is made between the current focus on crypto companies and the future focus on companies that offer value through blockchain or crypto without directly associating with it.

- Linda and Avichal are experts in the crypto space, discussing blockchain, smart contracts, and the four core concepts in the crypto space.
- Use cases for blockchain technology include decentralized exchanges, collectibles, programmable money, distributed compute, and distributed apps.
- Decentralized exchanges and collectibles are predicted to go mainstream in the next few years, while distributed apps may take longer.
- Scaling issues need to be addressed before widespread adoption can occur, with specific solutions being worked on.
- Truebits is working on off-chain computations for Ethereum blockchain and has a concept for error compensation.
- Cryptocurrencies and decentralized apps may have more impact in countries with underserved markets or weak financial infrastructure.
- Silicon Valley is a hub for innovation in the crypto space, but other hubs are emerging globally.
- The US government has been measured and smart in its approach to regulating cryptocurrencies and decentralized apps.
- Compliance with SEC regulations is important for security tokens, but not all tokens are the same.
- The government's role in protecting investors from scams in the cryptocurrency market is being questioned.
- Opportunities in the cryptocurrency market include identity systems, decentralized governance, scaling solutions, financial infrastructure, and dev tooling.
- ICOs have raised billions of dollars, changing the fundraising paradigm.
- The regulatory side of cryptocurrency projects is uncertain and will be interesting to see how it develops.
- Founders are advised to consider traditional equity routes instead of token sales, unless necessary.
- Vesting schedules for tokens and employees are important to align incentives.
- Mandatory privacy in transactions is preferred to protect user information.
- The potential risks and benefits of governments adopting cryptocurrencies are discussed.
- The importance of user-friendly onboarding ramps and decentralized oracles is mentioned.
- Crypto will become integrated into various industries and services.

Linda Xie - https://twitter.com/ljxie - is the cofounder of Scalar Capital - http://scalar.capital/ - a cryptoasset management firm. Before that she was a Product Manager at Coinbase (YC S12) - https://www.coinbase.com/

Avichal Garg - https://twitter.com/avichal - is a Managing Partner at Electric Capital - https://electriccapital.com/ - a digital asset management firm. He’s also an Expert at YC. Prior to that he was the Director of Product Management at Facebook.

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

I'm co-founder of a crypto hedge fund called Scalar Capital.

We focus on long-term investing in the space with a strong emphasis on privacy coins.

And then before that, I was a product manager at Coinbase.

I joined pretty early on and just been passionate about cryptocurrencies for a very long time.

Hey, I'm Avichal, serial entrepreneur, part-time at YC.

I've been in crypto since 2013, actively invest in currencies and various companies.

And this is where I spend a lot of my time thinking about the way things are going and what the future holds and where we'll end up in the next 10 years.

Because I think this is a pretty fascinating area.

Well, it sounds like you guys are the right people because we have a ton of crypto questions.

I know a lot of the listeners probably know or have a loose understanding of what blockchain with Bitcoin, all of this stuff is.

But just so we establish kind of a ground truth, Linda, why don't we start with you?

A blockchain is essentially a decentralized public ledger where you can have a recording of all the transactions that have happened on it without having a centralized entity that's kind of dictating what happens or someone that can manipulate the data.

And all of this is just done in a decentralized fashion.

So you don't have to trust who's actually controlling this data.

What are the other things that people ought to know?

I think that it's important to separate a cryptocurrency from new coins that have come out that are essentially people refer to them as crypto assets because it's essentially more than just money at this point.

So Ethereum is a smart contracts platform and smart contracts are essentially, you can think of it just like a contract that is essentially just programmable logic where you essentially have a decentralized network of computers that's executing this logic without having to rely on a centralized source that can get shut down or manipulate the information or data.

So a smart contract in itself is just really important.

And you can kind of, if you want to compare it to Bitcoin, just think of it as a bit more powerful than Bitcoin and that you can be a little bit more programmable.

I agree with everything Linda said so far.

I think the way I think about it, there's like 4 core concepts.

There's blockchain, which I think Linda covered well, as distributed ledger.

And it has a bunch of properties around who can read it and how you write to the ledger and so on.

I think there is this notion of consensus, which is how do we all agree on what gets written to the blockchain and what the universal truth is?

different mechanisms to agree on the truth.

There's the idea of a token or token economics, which is how do we align the incentives of all the actors in the space and there are different mechanisms to aligning the incentives And then I think there's the smart contracting layer Which is assume you have a ledger and you have tokens and people who are agreeing on the state of the universe What what degree of control and programmability do we give on top of that to?

The users of the blockchain or the programmers to do interesting things on top of that, which is I think where things like programmable money or distributed compute get really interesting.

Those are kind of like the 4 things that I think about in this universe, and you can kind of mash them together in different ways and different chains mash them together in

There are many use cases for distributed ledgers, for programmable money, all of these things.

But just from broad strokes, what are the use cases you guys see?

Essentially whenever there's a middleman that's doing programming logic and saying if-then condition and is charging fees for that, you can replace them with a smart contract.

So there's plenty of use cases for that in the financial system, healthcare, legal system.

So I view that as really powerful just automating things and allowing to there to not be a centralized point of failure.

And I think that's 1 of the most important parts of what this produces.

I think at a high level The way I think about it is there are kind of 3 buckets.

There's essentially programmable money, and there's a bunch of different facets to that.

There's privacy or there's smart contracts getting used as escrow.

And you could argue ICOs effectively are an escrow where you're locking up some ETH and then you can do something with it on the other side.

So it's kind of like programmable money is like 1 bucket of use cases.

Distributed compute is another bucket of use cases.

Like you can use all these computers all around the world to execute code.

And then the third bucket is distributed apps.

So things like prediction markets or distributed VPN networks.

And that's kind of the third bucket of use cases.

And I think pretty much everything I've seen so far kind of falls into 1 of those 3.

And sometimes there's a little bit of an overlap.

But at a high level, I think those are the 3 buckets I think about.

Cool, and so to jump into a question from Twitter, JP asks, what are the top use cases you guys think are going to go mainstream in 3 years?

And mainstream may be caveated by within this community.

Yeah, the 2 ones that I think will go mainstream are decentralized exchange and probably gaming, something along the lines of collectibles.

What's an example of that that's been out in the world right now?

So out in the world in the crypto community there's been crypto kitties.

So you can collect a unique digital cat on the blockchain and so that can never be destroyed.

People were kind of just collecting it like just digital beanie babies in a way.

You can breed them together and produce new unique cats.

But people just love collecting things in general.

I mean, that's been very common with stamps and coins and cars, people just love collecting.

And now you have a society where you can just collect everything in a digital manner and you can freely trade this and so That pairs well to me with decentralized exchange.

So for context, I worked at a centralized exchange where you essentially have this exchange controlling user funds.

And so Coinbase is really trustworthy and I'm fine storing my funds on Coinbase.

But there are a lot of centralized exchanges out there that have risk of getting hacked or getting shunned out by regulators, running with user funds.

There's also some barriers to entry if you live in a jurisdiction that just something like Coinbase doesn't support, or you don't have the right documentation.

So I'm really excited about decentralized exchange because you can now have a bunch of people that can participate in these markets and trade anything they want, trade digital cats if they want.

And so more people can just participate in the network at this point.

Like are those the use cases that happen in the next couple of years?

The 2 others I'd add or the big 1, the other big 1 I'd add basically is programmable money.

I think like payment, the payment rails will all get built out.

Things like lightning network and plasma or 0 fee payment networks that are coming up.

And I think the merchant side of those things will continue to get better.

And so I think payments as a category of stuff will happen.

And then kind of privacy is a subset of that too.

I think privacy tokens are actually a thing.

If you talk to a lot of people, hey, if XYZ thing went away, would you care about it?

They're like, yeah, it would be kind of unfortunate if that went away or I'd lose a lot of money because

And then you talk to people and you say, well, would you miss it if Monero went away?

And they're like, oh man, that would be really terrible because I actually use Monero to do something.

So I think the payment side of things was actually going to emerge.

I think decentralized exchanges and collectibles are too early, like real use cases that people actually.

And What about the decentralized apps that people are talking about and kind of dreaming about now?

What's the timeline on something like that?

I think this is probably a place where we might differ.

I think it's probably like 7 to 10 years out for most of these.

I think we're really, really early in most of these cases.

There might be one-off use cases like Orchid with VPN, where that's a real problem.

And being a distributed network and a decentralized network can be censorship resistant and so that's a core feature of the network.

I think there will be some early use cases, but by and large it's going to take several years.

I think my time span is just a little bit short, maybe like 3 to 5.

But I think that there's a lot of scaling issues that need to be solved before anything can go mainstream.

But I'm generally pretty optimistic that there's a lot of really smart people working on that problem right now.

And be more specific on the technical side.

So with Ethereum, CryptoKitties itself was so popular.

Bitcoin itself, so many people have been actually trying to use Bitcoin that the transaction fees have actually gotten pretty high.

And at some points it was like average $30 per transaction fee, which is like parallel to a wire at that point.

So you have so many people, I mean, it's a good problem.

So many people want to use it, but it's too expensive and it starts getting really slow.

And then in Ethereum's case, I know there's a lot of scaling work being done.

So L4 is an organization that was funded by the Ethereum Community Grant to essentially work on some scaling solutions.

There's a lot of different ones that they're tackling.

They're specifically working on state channels, which essentially you can kind of, if I were to compare this, it's kind of just like a bar tab in a way where you essentially have all these offline transactions where people are just moving back and forth between each other.

And you can update state and essentially you can update logic.

And then only when you want to finalize something you can move it back to the main chain.

So it's just a bunch of off-chain transactions.

There's also Plasma, which is Joseph Poon and Vitalik wrote about, which essentially you have blockchains within blockchains.

And so you just have all this work being done on these blockchains within a main blockchain.

And if you ever want to, Because the idea is that you don't really care about what everyone else is doing.

You only really care about what your transactions are all about.

So you're isolated in your own little blockchain.

And only when something goes wrong do you ever have to leave that blockchain and go back to the main 1 and report something's wrong.

So there's all kinds of things going on with this.

So just to understand that, by your own blockchain, are you meaning individual users or individual apps on a blockchain?

I mean, essentially you can just be isolated in your own world in whatever application or even individual use cases.

So this is very theoretical right now, but there's work being done on it.

There's also Truebits working on doing off-chain computations.

So essentially you don't want really complex computation on Ethereum blockchain.

You essentially can maybe move that off and pay people for computational to be done.

And essentially the problem is that you have to verify that the work was done correctly.

So they have a really, really cool concept where you essentially have forced, you force errors in the network.

So you essentially, every once in a while, the network will do some wrong computation in something that is incorrect.

And people who catch that error actually get compensated for that.

So you have this whole network where people are just constantly making sure that things are running correctly.

Because if they catch something, they get a payout for it.

So there's just a bunch of really cool work being done on it.

So I'm generally pretty optimistic at the ability to actually go mainstream.

Do you think that many of these apps that we're going to see are going to resemble things that are popular right now?

Or is this sort of like very much like the beginning of the internet and we had no idea what was coming, and it'll look more like that than a dupe of what we have right now?

Yeah, I think it'll be, that's a great question.

I think the early ideas will look like ports of stuff that we're used to.

Just like the early internet was kind of like the New York Times took the newspaper and literally like nytimes.com.

It's just because it's like that's the easiest way to transport to a new platform.

And we just couldn't have predicted social media, that actually Facebook and Twitter would be the actual media winners, or YouTube would be the actual media winner.

And so I think it would have been really challenging to predict something like Airbnb.

If you could have called that, then, you know, well, you'd have done quite well as an investor.

But also, you know, Airbnb, if you look at their early funding history, it was just really challenging for them because it was such an out there idea.

It was a thing that made sense on the internet.

So I think the first set of ideas will be essentially ports.

And there'll be people trying to sort of cargo cult kind of map the ideas over.

And then a couple years into it, people who are sort of thinking about these things natively will start to play with ideas and say, oh, well now you can do this thing that just wasn't possible before and here's an idea.

And what do you know, If I push a button, a car can come to me instead of me going to some place.

And so those ideas, I think it just takes a while for people to get used to it and for developers to play with the infrastructure and the concepts and just poke around and play around and see what's possible.

you think it will leapfrog by location in any way?

So for example, you know how LA was perfectly situated to have cars, but medieval European cities weren't?

And so they kind of then get leapfrogged and have the train infrastructure.

Do you think that will happen with a decentralized app?

Say for instance, in Africa somewhere where money is not the same thing as it is here in terms of payment accessibility and most things.

Will they take off in different places first or will that not be the case?

Personally, I never thought cryptocurrencies were going to take off in the US or anything at first.

I think it's going to be in countries where people don't have bank accounts primarily and they now need a method of actually storing their own funds, or countries where the currency is just getting inflated away and so the currency is not valuable.

So I find that in certain countries, the use cases of cryptocurrency actually matter more than in countries where there's really strong financial infrastructure.

So yeah, it definitely varies in my case.

And so there's also something like In China where you have all this censorship of using different applications, I could really see decentralized applications taking off in China.

I just always wondered like, is the valley a good barometer of the popularity of cryptocurrency and decentralized apps or is it not?

Yeah, in some sense, geography is just 1, is like 1 specific way to say that there's an underserved market.

And I think you will probably see things, Like the inspiration for new ideas does tend to take hold in these underserved markets.

And so geography is certainly 1 dimension.

Or you could have argued that college students were an underserved market when it came to social networks.

And it's just like they were all in 1 place.

There was an opportunity for a new type of media to emerge.

And so I think there will be pockets, even in developed countries, there are pockets that are underserved.

And so the question is really, where are there underserved markets where the new infrastructure gives you some sort of fundamental advantage or some sort of new utility?

And then there's a kind of a related question which is even if that's where the inspiration for the idea comes from how do the companies that build those products actually scale which I think is actually a different dimension altogether.

And so it's you know if you think about where the bottlenecks for actually building companies are, I think a lot of that is tribal knowledge that's in people's heads.

It's like, what does it mean to have a fast-growing startup?

So Coinbase, for example, is a YC company.

It's just like, what it takes to actually build a fast-growing startup, it turns out There's a lot of traditional best practices about how you hire people and how you structure teams and how you raise capital and a bunch of that stuff is like that tribal knowledge is in people's heads in Silicon Valley.

And so I think you could have the inspiration for ideas come from underserved markets.

But I wouldn't be surprised if the really big winners in crypto actually sort of re-centralize around Silicon Valley.

I mean, there's a lot of developers that I hear about are working on Ethereum applications in their spare time.

And so you're seeing a flock of developer talent from Silicon Valley into working in this space.

And I think that that's where you're going to see a lot of innovation.

Although it is pretty nice to see that there are different hubs around the world of blockchain development.

So there's Berlin and I know places in Argentina and Switzerland is another area.

So it's pretty cool to see more hubs pop up in the space.

And how how much do you think governance and regulation is going to affect those hubs?

Like does it ultimately mean just like there's a certain density of people that can build this stuff.

Or are these tax incentives different regulations actually going to move the market?

Yeah, I think it's really going to move the market.

So right now I think the US is being smart and not trying to be overly restrictive because they'll know that it will push out a lot of the development, especially let's say if you were to just really be harsh on people that were developing on these projects.

And I think that that would easily just cause people to just move elsewhere.

You're already seeing the tax incentives play out here.

So people are registering in Cayman Islands.

Yeah, people are moving to Puerto Rico and starting a little hub over there.

I actually know a few people that are trying to move out of California, especially because California has really high taxes.

Well, you see Nevada plates here all the time.

Yeah, and even when you have scenarios where people are mining in China and then all of a sudden China starts cracking down on mining, these miners have to move elsewhere and you're seeing people move over to Washington because electricity is cheap.

So there's like this movement just based off cheap electricity as well.

I think, I mean, the whole regulatory arbitrage angle to this stuff is pretty fascinating.

It's just how are governments, the game theory around how governments want To regulate this stuff is pretty interesting.

I actually think the US government has been really, really smart about this and pretty measured and sophisticated because I think they understand there's a lot of potential for innovation here and a lot of value to be created.

And I've been actually pretty impressed with how measured they've been.

I mean, you look at something like the BTC, the Bitcoin ETF paperwork that went in and all these people filing for it.

I thought it was so clever the way that they essentially pushed back on that.

They didn't actually reject the ETF proposals.

They essentially convinced the people who'd put in the ETF proposals to withdraw the proposals.

I think I don't have any inside information, just to be clear.

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Crypto Investors - Linda Xie and Avichal Garg