Crypto’s new chapter

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SHEILA WARREN: 20 percent of Americans, across all demographics, hold crypto. It’s a wild number. One in five. It’s something to take seriously and not to be afraid of. But also to be aware of because it’s not just something relegated to like some randos on the internet, you know, or sophisticated investors who are tracking the price of tokens every single day. It’s more relevant to everyday people than most people understand. 

SAFIAN: That’s Sheila Warren, CEO of the Crypto Council for Innovation, a global alliance supporting the technology. I wanted to talk to Sheila to understand the state of crypto today, as prices rebound after scandals at FTX and elsewhere. Sheila takes us inside the crypto industry’s big gathering last week in Austin, and she shares lessons from a new, comprehensive crypto bill passed 10 days ago by the U.S. House of Representatives. She also reveals how crypto is impacting the presidential election, and why you may already be using crypto tools in your business and personal life in ways you don’t realize. For anyone skeptical about crypto culture and Bitcoin hype, Sheila is here to show you what you might be overlooking. This is Rapid Response. 

SAFIAN: I’m Bob Safian, and I’m here with Sheila Warren, CEO of the Crypto Council for Innovation. Sheila, thanks for being here with us today. 

WARREN: Thanks for having me, Bob. It’s good to be here.

SAFIAN: I understand that you just got back from the Consensus Conference in Austin, which is Coindesk’s Big Crypto Conference each year. How was it? Any memorable moments for you?

WARREN: Oh my goodness. This year, they had a bunch of different members of Congress that came down, they had RFK Jr. speaking who’s come out as kind of a crypto guy, lots of discussions about the former President Trump, about President Biden. So I’d say it was a more policy and politics oriented conference than usual. The other thing I’ll note on the technical side was lots more discussion of decentralized AI. You know, people in crypto, even now it’s become a little bit more mainstream for sure over the last five or so years and definitely in the last year and a half, but it’s a place of people who believe there is a culty element to it. Definitely. So sometimes you see some funny things for sure. 

Copy LinkUnpacking crypto, blockchain, and Web3

SAFIAN: People often misunderstand and conflate crypto and blockchain and Web3. Can you try to quickly sort of explain those terms, explain the differences and what you mean when you say crypto? 

WARREN: Yeah, so blockchain is a technology. It is an underlying technical architecture. It is essentially a way of creating a decentralized and distributed system for tracking the exchange of value from a place to a place, and that’s a blockchain — it’s a technical term.

Web3 is an ecosystem. It is about everything from culture to governance to the applications built on top of a blockchain. There are different, what’s called, layers that go into that. So if you think about Web2 is kind of like we’re all using apps and giving our data away all the time, et cetera. It’s kind of the traditional web experience. Web3 is a different experience where at the heart of the experience is user-owned information, user controlled, user owned data, user owned, user controlled value, money, whatever it is. Okay. So that is a lot of different elements. It’s the broadest of the terms.

SAFIAN: And if I understand that, like blockchain is a real technology that is used now. Web3 is an idea that is coming into being, but may not be fully implemented everywhere.

WARREN: That’s fair. It’s a transition. Web3, we’re transitioning into a Web3 world, as a lot of us say, and that is happening faster when it comes to the money side of things, the current side of things, and slower when it comes to the data side of things, but that’s catching up.

So crypto is a tool. I think of it as a tool, usually when you refer to crypto, you’re talking about a token that is a marker of a thing. And what you can do with a blockchain is track the movement of the thing from place to place. And crypto is the thing you could say that is moving.

Copy LinkThe increasing acceptance of crypto

SAFIAN: So the last time I had a guest on this show to talk about crypto, it was a couple of years ago, and it was in the midst of a crash, like the mood was not good. Prices were down, FTX and others dominating headlines. This year, it feels like all of that has shifted. I imagine that must have been part of what you were feeling at Consensus — why is that? Is there something specific that has changed or is this just sort of the nature of the cycles that tend to go around with crypto?

WARREN: I think it’s both. So first of all, I’ll say I didn’t find the mood at Consensus to be as euphoric as I think people on the outside of the industry might imagine. I think that’s just because so many of us have been through these cycles before. So the enthusiasm for this kind of rising bull market is a bit more tempered than it’s been in the past. There’s been some maturity, I think there. 

But I think it’s different this time because we’re finally seeing some movement in the United States in terms of what seems to be a bipartisan and real understanding that this technology is not going anywhere. It is very sticky. It’s around, so everyone has to figure out what they’re gonna do about it, or with it, or whatnot, right? And that there is a desire to make the United States competitive when it comes to the innovators and builders in this space. 

Whereas I’d say two years ago, particularly in the wake of the FTX scandal, all those kinds of things, I think there was this sense that, “oh man, like, we’re really going to see this. See the United States from its regulatory and legislative perspective, push this technology offshore as much as it possibly can.” And that was very demoralizing for people. Not to understate the impact of the FTX fraud, nevertheless, that was one small group, right? Didn’t represent an entire industry to say the least.

And I think we have kind of, I wouldn’t say we’ve exited fully the FTX era if you will. But I find for me, no one’s really talking about that anymore. Sam is in jail, Ryan is apparently going to jail. So I think people feel like consequences were issued. And the industry has grown so much and proven even in the wake of that big collapse of a really massive exchange, to be very sticky and persistent. And so the idea that one company could kind of like topple the industry was never true. And I think that messaging is very different than it was two years ago.

Copy LinkHow the U.S. has fallen behind in crypto investment

SAFIAN: You mentioned the position that the U.S. has in crypto relative to other places. That was one of the panels you spoke on, about sort of other locales that are further along.

WARREN: Yeah. All of them. I mean, yes, pretty much. Yeah, you know, you can’t count on the United States, right? The United States decides that it wants to invest in a technology, meaning make it a friendlier environment within which to build on that technology, you’re going to see it skyrocket, but nevertheless, it has not been a particularly friendly or easy environment for builders in Web3 more broadly, certainly in crypto. And I do think you’ve seen offshoring of developers, folks moving to other places that do have more established rules. So, everywhere from the EU to the UK, United Arab Emirates, Singapore, Bermuda like all big small jurisdictions, and the United States we’re still kind of like we don’t really know what’s going 

SAFIAN: Who’s in charge? Who has authority? 

WARREN: Who are my regulators? So yeah, you can see why it would be challenging to try to build something really innovative and novel in that environment.

Copy LinkExplaining FIT 21, the crypto-related bill

SAFIAN: Just before consensus. The U.S. House passed a crypto-related bill, which I think is referred to as FIT 21, about the regulatory environment around crypto. It was bipartisan, so there were 71 Democrats who voted for it, I think. Not much bipartisan is happening these days. I know you worked on this bill. Can you explain what the bill is and sort of how it came to be? It sounds like it’s an attempt to resolve some of this uncertainty that you’re talking about. 

WARREN: That’s right. So this bill really tries to lay out a path forward to not necessarily to settle the question of whether any individual token is a security or commodity, but to say, here are kind of the options, right? And it gives the CFTC a clear role in the regulation of digital assets, which is the generic term we use for all these assets, NFTs, you know, tokens, et cetera.

I should give some context here. So the CFTC, SEC debate, if you will, who goes where has been something that precedes crypto, but in an area as novel as digital assets, it’s not entirely clear what the rules should be in terms of who goes where. So it attempts to clarify some of that. 

There’s a lot of other stuff in there that I won’t bore your listeners with, but suffice it to say, it’s been in the making for two years. And in fact, the original version of this bill was set to kind of move through and get to the floor even potentially when the whole FTX thing blew up actually. So that put some reins there and didn’t really go forward until right now. Now, I should note also, I want to be very clear, Fit 21, as it’s called, is not law, it passed the House, it now, of course, goes to the Senate. Oftentimes, when you have a bill like this, the Senate will have what’s called a companion bill. So in parallel, they’re working on the exact same issues; they have their version of it. In parallel, usually it makes it through their committees, through the floor, and then you kind of have a negotiation between the Senate and the House. We don’t have a companion bill. Okay? So what’s starting now is a lot of work on the Senate side to pull together essentially a companion bill to put the Senate position on the table on these issues. 

So there’s a lot more to do here before this actually becomes law. But the signaling from the house that they have aligned on this in a bipartisan way, I cannot overstate it is massive; it is an absolutely massive accomplishment. It demonstrates tremendous progress. And as you also noted, Bob, in this Congress, doing anything in a bipartisan way is extremely unusual. So, here we are.

SAFIAN: Yeah. I mean, you said two years of work on this. You know, that may not be that long for a bill, for you. It’s a lot of time, though, right? 

WARREN: I think you just never know until you know, and the other thing happening in parallel here is the industry getting very fatigued by the Democratic Party and in some cases, like I think Senator Warren pretty overtly starting her anti-crypto army. Like we’re really trying to attack this technology. There’s no party platform on this. There are individual actors that have strong views. Most folks don’t have any view on this technology. They don’t even know what it is. They’re on the judiciary committee. They’re worrying about getting judges nominated. They’re not thinking about crypto currency. They don’t care. So you don’t know until the moment of a vote. Like, how are they going to turn out? 

So again, it is just a massive statement on the part of the house anyway, but on the part of both parties to say, you know, we believe that America should remain at the forefront of technological innovation, which is a stance that some folks were doubting was the case. And I do think that has a lot to do with just that kind of sense, I think in the United States of like, what are we doing here? There are things about the technology that are problematic, fraud, whatever, let’s address those, but not vilify an entire technology or industry because of certain things that we actually are tasked with addressing, because that’s the job of Congress, right? So I think it marks a significant shift in politics, not just in the approach to technology, but you know, I’m an optimist, so I guess we’ll see what happens when we get into election season. 

SAFIAN: Legislators, they’re not technologists, and if they have trouble understanding what social media is, blockchain and crypto is much more complicated, and I think it’s just hard sometimes for them to really understand what it is they’re working on. 

WARREN: Yeah. And I think what’s interesting about that, Bob is, you know, I don’t know that most people understand how the internet works, and you don’t need to understand how the internet works necessarily to say, “that seems like a thing I probably want to keep an eye on and have in this country.”

The reason I took this job in part was because I got so tired of policy makers all over the world telling me like, “God, if folks come in here, I don’t know what they’re talking about.” A lot of folks in the Senate, it was their kids. It was a couple of their kids who were saying, “Hey, Mom, who’s a senator? This stuff is really interesting. I’m mining Bitcoin in the basement, FYI.” And they’re like, “what the hell?” You know, and they came from that kind of personal connection because they were like, “well, if my kid is doing this, I probably should pay attention to it as a parent, but also my kid is not an idiot. So it must, there must be something there, you know?”

So you have to kind of have that approach of like, what’s going to make this interesting? How do you get somebody curious about it? And then why the trajectory of influence of this technology is going to be quite profound, even though the more it becomes mainstream, the more invisible it will be, ironically, right? And I think that has been a winning argument clearly for 71 democrats and most republicans. So here we are. 

Copy Link“The loudest voices in the Democratic Party are overtly anti-crypto.”

SAFIAN: You mentioned the political environment and how it has shifted around relative to crypto. You know, Donald Trump seemingly swapped his position now vocally supporting crypto versus at some point seeming like he’s attacking it. The Biden White House, it seems, may have softened some of its language. You wrote in an op-ed for Fortune recently, in which you identify yourself as a Democrat and then kind of exhorted the party, not to let itself be defined as anti crypto. Why did you write this? 

WARREN: So Justin Slaughter and I wrote about how we consider ourselves, old school progressives. The new progressive movement’s very different, but we’re kind of like, you know, 80s, 90s progressives, if you will, right? And we actually feel that the crypto Web3 ethos is inherently very progressive. What is it trying to accomplish, right? Distribution of power, decentralization, user-controlled information, like all of those things are very progressive. And so we made that case the loudest voice in the Democratic Party are very overtly anti-crypto, right? We were saying: What are you doing? Like, why would you do that? The reality is that the more the Republicans become vociferously in favor of this technology, the more you look out of touch, or you look like you’re hostile to something that is actually like a movement that is growing and growing and growing.

I mean, I should note Bob that 20 percent of Americans, and this is of likely voters across all demographics, hold crypto. Not a lot of crypto, but a little bit of crypto. Enough to say — 

SAFIAN: Whether they’re registered Democrats, Republicans, or independents, it’s 20 percent across all of them.

WARREN: That’s exactly right. Old, young, black, white, rural, urban, like 20 percent across all demographics hold crypto in some, to some degree. And that is, it’s a wild number. One in five. One in five is pretty wild, right? So when you think about that, you’re like, are you sure it’s not your constituents? So it really comes down to, do you want to be seen as a party that is taking a stance, a political stance on a technology? Or do you actually want to be a party that is attempting to comprehend and wrestle with the reality that this thing is not going away? And it actually is beneficial to people in your districts and your constituents who are engaging with it, whether you know it or not. 

SAFIAN: Sheila’s raising an interesting point here, about what it takes to not just seem modern but be modern — as a political party, as a country, and for many of our listeners, as a business. If 1 in 5 Americans are engaged in crypto, and the number is growing, that’s a trend that we should all take seriously. Of course, there are concerns about crypto too — that it might be used by bad actors, that it can be distorted into a get-rich-quick ponzi scheme. We’ll dig into those topics and more after the break. Stay with us. 

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Before the break, CEO of the Crypto Council for Innovation, Sheila Warren, updated us on the state of crypto today and the intersection with politics. Now, we dig into what most people misunderstand about crypto, the threat of nefarious actors, and how Web3 could be an antidote to things like the Scarlett Johansson-OpenAI dispute. Let’s dive back in. 

Copy LinkHow Sheila Warren got involved with crypto

You joined the crypto council two years ago. You came over from the World Economic Forum. How did you get involved in crypto in the first place? 

WARREN: I was general counsel at a social enterprise called TechSoup, and I actually got into blockchain from the data side of things. We were noticing that there were just hacking attempts coming. And, I had dinner with a friend of mine who said, well, you know, “rather than creating this honeypot centralized database, have you thought about putting data on a blockchain?” And I said, “what the heck is the blockchain?”

So I read the Bitcoin white paper, Ethereum had launched recently, IPFS had launched recently, and I got very, very interested and compelled by the idea you could create distributed decentralized systems of data storage that would not have this sort of centralized place where a hacker could go and grab a lot of valuable data. We were doing ourselves no favors at the way that we were holding data online. The cloud was good and bad, right? Lots of cons to the cloud, right? And how could we do better with that? And that’s something we’re now seeing begin to emerge. 

Copy LinkHow crypto is “shockingly easy” to trace

SAFIAN: It’s interesting that you’re drawn to crypto really as a way to sort of safeguard things. And yet a lot of people’s worries about crypto and blockchain is that it’s going to be used for nefarious purposes, whether that’s criminal enterprise or individuals being taken advantage of by something they don’t understand. How do you think about those two sides of it? And how do you respond to those concerns that people have about a technology that can be used for less than honest purposes? 

WARREN: Yeah, I do. I think those are real concerns. I understand them. I think I can tell you on behalf of the industry, nobody in this industry is building things, so that bad actors can use them for nefarious purposes to hurt people. I mean, that is not an intention. That being said, I think what I would say to that is blockchain is a traceable technology. And so the reality is that if you’re a criminal, and you are using crypto, you’re an idiot. Okay, because it is extremely traceable. And in fact, if you talk to people at FinCEN, at DOJ, at the FBI, they’re like, “yeah, like we can literally see when something moves from a wallet to another wallet. We can track the movement of the money. We know exactly where it is, where it’s going.”

And so the reality is, yes, that you can use anything for nefarious purposes, right? Cash remains the number one private secret way for criminals to do business is pallets of cash at the end of the day. It’s really hard to trace cash. It is very easy to trace Cryptocurrency on a blockchain. It is shockingly easy, in fact.

SAFIAN: It’s interesting, right? it’s more anonymous in some ways, but also more transparent all at the same.

WARREN: No question about it, in terms of like the scams and whatnot, that’s horrible, right? The same way someone will go onto Facebook and create a fake profile and catfish someone and steal their bank account information, people are doing the same thing using crypto. But the problem there isn’t the form factor, I would argue. It’s not that crypto makes that easy. It’s that those are terrible people, and they’re using a different method for doing something they’ve been doing for a long time.

I will also say and credit a lot of the exchanges and people in the industry who’ve done a lot of education about: how do you fight scams? What do you do if this happens? How do you notify people? How do you prevent this from happening? If you open a wallet at any of the major exchanges, we’re going to see a pretty significant work stream that’s educating you about how to keep that information secure and safe.

Copy LinkWhat do people most misunderstand about crypto?

SAFIAN: So what do people and businesses most misunderstand about crypto? I mean, for a lot of people, they just think of it as like, what’s the price of Bitcoin that you’re hearing someone talk about on CNBC? What should they be paying attention to? 

WARREN: The investment side is not what I focus on. It doesn’t really help that you have a crypto ticker now, and all the financial programs have a segment on crypto. So the overemphasis on the value of the token and whatnot is I just find it very distracting. And I genuinely find the price of the asset that at any given moment the least interesting thing about the technology and about crypto, like great I know for people that are just looking to make money. That is the most important thing, but I’m in this for very different reasons. And what I think is being missed is, again, we are talking about restructuring the architecture of the entire internet right? Underlying these systems is an invisible layer right now we’re talking to each other over the internet, right? Someone has access and a line of sight to that. It is not you or me. We have no ability to influence any of that. Our information goes into this void. We don’t know where it goes. All those things we take for granted as being part and parcel, the cost of doing business, if you will, the cost of being online. It does not have to be that way. 

There is a different way of creating a much more user centric internet that is focused more on the individual. And for me, again, the big play is data. And we’re starting to see this really emerge in the conversation more than it has. I’ve been waiting for this for, you know, almost 10 years, this conversation, right? How are we storing data? How are we moving packets of information from place to place? Who gets to monetize someone else’s likeness or information? The Scarlett Johansson OpenAI thing is wild. Okay, I will just box check that and assume people can Google it or know what I’m talking about. Absolutely wild. How do you create intellectual property around things like likenesses online? What is public domain, and what is not? 

All of these questions have a predicate assumption that there is an intermediary that is navigating and creating rules of the road. That does not have to be the case. And we’re moving into a world where the more frustration there is with big tech monopolies, with lack of ability to take your toys, as they say, and move, take your data, take your Twitter handle, take your whatever it is, and move it somewhere else. We are slowly replacing the underlying architecture. And to do that, you need essentially crypto. You need a token that is tracking the movement of a unit from place to place, a unit of authenticity from place to place to place. That information is the same information it was when it was here, and now it’s here, and now it’s here, and now it’s here.

Similarly, digital identities. Okay. We all know about Real ID in the United States. You got to get a Real ID, but that’s just an extra layer on something. But what we really want is a blockchain-based identity. So that I can basically prove I am who I am; it’s secured in a blockchain. No one can take it from me, and I can demonstrate that I am who I am over here; I am who I am over here on this website, and on this website, and I can prove it using an immutable record that is secured by a blockchain.

So all the numbers go up, numbers go down, blah, blah, blah. That’s all, you know, fine. But that is really missing the core aspect of what is so powerful about this tech and where it is moving us as a society.

There is always going to be a role for crypto, for blockchain technology. The more time goes on, you’ll be using blockchains every single day without realizing it, and many of you probably already are. And so I just would say, it’s something to take seriously and not to be afraid of. But also to be aware of because, it’s not just something relegated to like some randos on the internet, you know, or sophisticated investors who are tracking the price of tokens every single day. It’s more relevant to everyday people than most people understand. 

SAFIAN: Sheila, this has been great. Thank you so much for doing this.

WARREN: Thanks, Bob. It’s such a pleasure.

SAFIAN: I have to say, over the years I’ve been put-off by the often hype-driven culture surrounding crypto. When FTX fell, like a lot of people, I wondered if the industry would enter a tailspin. But speaking with Sheila, you can understand why many people still have enthusiasm for a Web3 world and the potential of a “new internet.” Now, am I going to go home tonight and buy bitcoin or an NFT? Probably not. But Sheila’s point about understanding this technology and tracking how it’s unfolding makes a ton of sense. And it reminds me that, even as we dig into understanding generative AI and how it’s evolving, that there are other technologies that require attention too. We’ll hear about another one that’s having a moment in our next episode, focused on robotics. I’m Bob Safian. Thanks for listening.