I think back 2012 you guys invested in Bitcoin. What was the thesis back then?
So the thesis in 2012 was digital gold. Gold is scarce but it's not a fixed supply whereas Bitcoin is actually fixed at 21 million and that supply will never increase no matter how much demand there is. I guess the one thing it doesn't have is the privacy factor. Satoshi was talking about zero knowledge proofs but he didn't know how to implement them and Zcash completes the arc because it's decentralized money that is private.
How has your conviction in Zcash evolved with AI? What is it looking like today?
I would say that it only...
Hey guys, it's good to be here.
Yeah. Hey Max, good to be here as well.
Yeah, so where and where are we? I mean, we're here in Singapore and I guess my first question was you guys invested I think by 2012 first in Bitcoin. What was the thesis back then?
So the thesis in 2012 was digital gold. When we looked at the properties of Bitcoin and compared them to gold, so the supply, it either equaled or exceeded gold. So supply, for example, gold is scarce, but it's not a fixed supply. Whereas Bitcoin is actually fixed at 21 million, and that supply will never increase no matter how much demand there is. It's more portable than gold. Gold bars are actually pretty heavy. That's what we call the die hard problem. Like you can sort of rob the Federal Reserve. You have to load it up with trucks and then somehow cart it out of the city. It's actually pretty hard to move large quantities of gold and the divisibility is greater. So if you just go down the characteristics, I think you know we charted out nine, Bitcoin exceeded gold. I guess the one thing it doesn't, and at the time we didn't probably give it a ton of attention, was the privacy factor. If you have a bar of gold, nobody really knows that except for you. And that is not the case with Bitcoin. And it was clear that Bitcoin was an open public blockchain back in the day. And it was always sort of a misconception that Bitcoin was used for nefarious activities or bad actors. And one of our sort of pushbacks on that was that Bitcoin's a public blockchain. It's auditable. It's actually a really bad place to do bad activity.
Yeah. Actions are recorded forever, permanent. So, yeah.
Yeah. To a fault. I think the other dimension is the technology. So, Bitcoin works like your email and it was the first money that was purpose-built for the internet. And so, Bitcoin is actually two things. It's a protocol Bitcoin capital B and it's also an asset Bitcoin lowercase B of the protocol and so it is the first money that is really internet native and that's very different than wire or ACH and so the protocol and the technology aspect was a big aha moment for us we said hey this is the internet of money so this is a very big deal. And money is the greatest social network of all time.
Right. Right. That makes sense. Moving then forward to 2016, you participate in the seed round for Zcash. What was the thesis then?
It's the same thesis as it is today that financial privacy is important and Bitcoin actually affords less than the traditional system. Ironically, if I wire you money, other than our banks and you and I, nobody else sees that movement of funds and that is more private. Or if I use physical cash that is more private than the Bitcoin blockchain. And so we saw that Zcash was solving that critical problem. And obviously privacy, why is that important? It's important for a free and open society. And I think Satoshi would have included it in the original protocol if zero knowledge proofs were further along, but they were brand new. They were much larger. I think there are size issues in the block size. And so similar to like how the original internet would have included probably a money over IP or you know internet money if it existed at that time at the dawn of the internet I think Satoshi would have put privacy into Bitcoin because I think at the top you know the abstract of the white paper says electronic cash but it's actually not cash because it's public. So I think that we saw that problem we felt it was an important thing to solve and that was a thesis and it's true to this day even more so and this is of course pre the major breakthroughs in AI over the past couple of years.
Yeah, privacy is normal and money has been private for most of its existence. If you go back to let's say I don't know is it 10,000 years shells precious metals gold, gold is a precious metal but it's only in the last let's say 50 years or so when we started making money digital that it was so traceable and so public in a way. Yes, I think Satoshi was talking about zero knowledge proofs but he didn't know how to implement them and so Zcash is really completing that arc of true, like you said, electronic cash, true cyberpunk ethos. And money has been misused by governments to manipulate populations forever, either through capital controls or abuse through hyperinflation.
And so they kind of achieve the separation of money and state where the state no longer has a money monopoly. Imagine if the state had a monopoly on math and innovation and that wouldn't go that well. The separation of money and state is important, but the true separation of money and state is making that money private because it's one thing if money is separated and it's Bitcoin, but if the government can surveil it and it's a panopticon, then you haven't fully achieved that separation. And so I think of privacy as this boundary where the state ends and you begin your individual freedom, your self-sovereignty. Those boundaries are important. And we see this with property. We see this in the fourth amendment. The unreasonable search and seizures of the government of your property. I think to some extent obviously gun rights backstop the first amendment but they also help you preserve your sovereignty against tyranny. It's a difference between citizen and subject and the private money also achieves that and encryption is the peaceful non-violent version of the second amendment. So when you think of the values of the founding fathers and the country and what makes America great, privacy, self-sovereignty, property rights, your boundary, your space, including around your money is super important. And we always have to fight to preserve that and curb the encroachment of government, which only goes in one direction, but it never goes the other way. And I think Milton Friedman said that there is nothing so permanent as a temporary government program.
So we have to always back and stay vigilant. So cash was centralized but private. Bitcoin took a big leap forward in creating decentralized money but it's public and Zcash completes the arc because it's decentralized money that is private.
Right. Very well put. How has your conviction in Zcash evolved with AI with quantum? What is it looking like today?
I would say that it's an accelerant and so AI lays bare how public the Bitcoin blockchain is or many blockchains that aren't private. The advances in quantum will only make Bitcoin less secure because it is not Shor resistant and Shor is an algorithm that will speed up the breaking of RSA or elliptic curve ECDSA cryptography and so Bitcoin is underpinned by the kind of cryptography that advancements in quantum they're not Shor resistant and quantum Shor is a quantum algorithm to break I think it's either you're factoring primes, large integers, you're factoring primes, and then discrete logarithm problem. Whereas, Zcash is quantum resistant to Shor's because you can't break what you can't see. And of course, it's prudent. So, if you use the shielded pool like Ironwood, no matter how good the AI is, it's not going to be able to surveil that. I think if you're bullish on AI, you have to be bullish on Zcash, even if you don't know it. Because if you believe that AI is going to continue to accelerate or improve, then that means your financial privacy will continue to deteriorate and therefore Zcash will solve that problem.
That makes sense. What's the place of Bitcoin in a world where Zcash exists? I mean, one could argue that had Bitcoin come after Zcash, no one would be using Bitcoin, right? What does that look like?
So I think there's some use cases where being publicly verifiable or auditable is actually a feature, not a bug. And so there's going to be some institutions that want to say, 'Hey, here's our Bitcoin address. Take a look at our balances. This is what we have. Don't take it from us, but look at the blockchain.' So I think there's scenarios maybe central banks or some institutions want to hold their balances in that way. And also, I think Bitcoin is probably not going anywhere. It's sort of started this revolution. It's got almost two decades of track record. And for a lot of people, just having exposure to a sort of value that has a fixed supply is enough. And that's great. But I think if you're going to actually use something for transactions and cash, then you're probably swapping out of Bitcoin into Zcash, transacting, and maybe you're going to swap back. And I still think that the Bitcoin story, even though for us, we've been living it for, you know, close to probably, you know, 15 years or so, it's still early for a lot of people. And so I think Bitcoin story is early and Zcash's is very early.
Where do you see Zcash in say like 5, 10 years from now? Does it like follow the Bitcoin trajectory of like cycle after cycle getting adoption? Like how do you think of that?
Yeah, I mean I think the first major moment I think we experienced in Bitcoin was the Cyprus bail-in. And while people weren't necessarily in Bitcoin at that time, a lot of people they saw what happened were basically deposit holders, I think above €100,000 in Cyprus banks, they got a haircut and just taken away. And I think that was one of the big inflection points for the general awareness and consciousness of Bitcoin and why this decentralized non-governmental money is really important. And I think that there's probably going to be moments like that in Zcash where the importance of financial privacy will be sort of illustrated in very clear terms. And so there will be moments like that. Like whether it follows a cycle, four-year cycle like Bitcoin, I think is unclear, but it's probably most correlated to advancements in AI in which case it's its own. It doesn't the emissions cycle of the halving of the block reward is maybe less important than breakthroughs in AI and advancements in those models. It may just be much more tethered to those advancements than the actual halving cycle.
Yeah, I would never consider Zcash a trade, but it is the other side of the AI coin. And so the more parabolic and meteoric the rise of AI, the more scarce an asset privacy is going to become. And so I think if you're looking for the AI hedge in crypto or the quantum hedge in crypto, that's going to be Zcash. And as AI continues to grow at the pace it is and capture the minds of the world, I think Zcash is on that same wave. So I don't know that we're going to see the same cycles that we saw in Bitcoin. There was no, the transformer hadn't been invented in 2012 or 2013 or 14. And so these catalysts weren't there. There wasn't the quantum catalyst. There wasn't the AI catalyst. And so I think it's hard to predict. I think it would be probably a mistake to say, 'Okay, well, we'll just look at Bitcoin's chart and it will mirror Zcash.' I think we're in uncharted territory. There's a trillion dollars committed in data center buildouts by the Frontier Labs over the next I don't know what the period of time is.
Probably the next five years. Let's say five years. It's maybe the biggest swing the country, more than the commercial internet laying, you know, fiber optic, more than railroads, more than the telecom revolution. I mean this is the biggest technology infrastructure buildout ever.
Yeah. So, if we're right about that being a catalyst for Zcash, it's quite a big catalyst. But I think one of the easy ways to sort of think about Zcash is also in reference to Bitcoin. And right now, I think the market cap of Zcash is somewhere around 25 billion and I think it's about 2% of the size of the Bitcoin market cap. So, what is the value of privacy? Is it 10% of Bitcoin? And we love Bitcoin. And I don't think it's going anywhere, but I think that privacy is probably worth more than 2% of Bitcoin. And so, let's say it's worth 10%, then you have a 5x. You know, you can sort of back into that very easily, and you find yourself, I think, above, you know, easily above $5,000 a coin. And there's clearly a path to, I think, a $10,000 coin.
And just to build on that point, I'm not sure a lot of people know this, but Zcash is a fork of Bitcoin. And so it's a private Bitcoin. It's encrypted Bitcoin. It's not starting from scratch. It's standing on the shoulder of giants. And so to think of it as a percentage of Bitcoin is I think a good and reasonable framework. Because its origin is ultimately Bitcoin. Obviously, it's much different in terms of where it's gone, but I think matching it as a percentage of Bitcoin is a good way to think about it because they both have 21 million supply. They both have the four-year halving cycle. And so people who understand Bitcoin, you understand Zcash. It's essentially encrypted bitcoins, right?
That I sort of left that part out. But the forking of Bitcoin, obviously Zcash has zero knowledge proofs and you know it's very different technology but the important things like fixed supply of 21 million coins there will never be more. And going back to the early part of the conversation of comparing Bitcoin to gold, right, gold is scarce, we're still finding and mining more gold. You can't mine more than 21 million Bitcoin, you will never be able to mine more than 21 million Zcash. A lot of people don't understand that. And when you tell them that simple fact, they're like, 'Aha, I get it.'
