How do we think about the opportunity presented by cryptocurrencies and stablecoins? And can we trust
this technology to be the base infrastructure for a new decentralized society? And if so,
how do we regulate them? Do you sort of agree with Jose that it's important to have this
public sector option in there as well? How do you think about these two different sides?
- Sure, well, first of all, terminology is very important here. If by cryptocurrencies we mean
things like Bitcoin and other crypto assets whose value is not tied to sovereign money, I would say
I don't see those things becoming currencies. They're not gonna become the foundation of the
financial system. The underlying technology is important, and I'll talk about that in a moment.
But I would distinguish those from stablecoins and from central bank currencies, central bank digital
currencies. And that really goes to kind of what Jose noted, the difference between public money,
meaning money that truly is issued by the central bank versus private or commercial
bank money today. Most of us use commercial bank money, right? We don't use cash anymore. I mean,
occasionally we do. But we use our credit cards, we use our checking accounts. That's private
money, but it works. We all trust it because it's backed effectively by the government: by an entire
regulatory framework that supports it, that regulates it, that provides deposit insurance.
Bitcoin doesn't have that. And the history of truly private money that isn't backed by
a government is that it doesn't succeed for very long. We've had moments where it's been created,
where it's been useful, where sovereign money wasn't in sufficient supply. And that's the
history of what happened in the mid-1800s with bank notes. But eventually, truly private money
that isn't kind of backed by the state gets displaced. The sovereign either prohibits it or
taxes or regulates it out of existence. Now, I'm not saying that's what's gonna happen to Bitcoin.
It might still be a speculative investment. But I don't see it becoming a payment system.
Stablecoins and CBDCs, on the other hand, I think are potentially important. But let me
turn to the decentralization question, 'cause I think that's very important. And I think, Neha,
the way you tried to frame it was very useful. Because sometimes people in the crypto industry
I think think of decentralization and think of the promise of crypto assets in terms of
decentralization, as creating something that is beyond or free from government:
censorship resistant, transnational, whatever. I don't think that's a foundation for a financial
system. I think you have to have a government framework for a financial system. But if we mean
by decentralization less concentrated private economic power, and kind of your definition of
can someone exercise control more easily, I think that is very relevant. And that's where blockchain
technology, distributed ledger technology is very exciting for some of the reasons Sandy
was talking about too. When you really drill down on that, why is it useful? I think of all
these things from the standpoint of the financial system. One way it's useful is that it provides a
way of reconciling data very effectively. Our financial system spends an enormous amount of
money with different parties reconciling the same data. You'd be amazed at how costly that
is. Blockchain eliminates a lot of that. Second of course is the transparency and the access. Lots of
people can then see that ledger, can access that ledger, can even add transactions to it. And then
of course there's the programmability element. So all those I think are very important reasons why
the technology is important. On the other side, however, I'm very concerned that, truthfully,
blockchain technologies aren't as decentralized as a lot of people would like to think. Because
the verification systems, the validation systems, the mining process for Bitcoin is
heavily concentrated. To date they've actually, blockchain was supposed to, or Bitcoin was
supposed to create a peer-to-peer transfer system. It actually gave rise to a whole new class of
intermediaries that aren't very well regulated like Coinbase and other exchanges. And I worry
about the power of large technology companies that will want to control this technology. So
I think there's a decentralization promise, but it's not clear exactly if we get there.
- Interesting. Glen, I would love to hear your response to that,
to what Tim sort of just shared. Yeah, are cryptocurrencies sort of not the answer? Do
you think it needs to be government-run? How do you sort of respond to that?
- I mean, I don't think that anything driven by sort of
anarchist hackers is likely to lead to sustainable decentralization. Because we have a very,
very long history, actually this beautiful book coming up by Henry Farrell about sort
of like hundreds of years of history of this, that sort of naively capitalist
systems of various kinds that are meant to lead to openness and transnationalism and whatever,
almost always degenerate to sort of like reinscribed patterns of basically like empires.
- The tyranny of structurelessness kind of thing.
- It's just what always happens. And the brief experiments that we've managed to have some
success in for some period of time, in actually achieving decentralization, have almost always
come from careful interweaving of different social sectors that have some fear factor to really need
that decentralization as a concerted goal. So like the internet famously arose from fears of
attack by Soviets, and the ways in which that would interrupt various communication systems.
Decentralization and military systems come from similar types of motivations. There's tons of
examples of different systems that became decentralized throughout American history
because of concerted and nationwide political action in that direction.
So I don't think that there's any chance of getting towards sustainable decentralization
by just the more chaotic things we see out there in the media. But I think that it's
conversations like this where people from all these different sectors are coming together,
and really trying to invest in making decentralization available as a public good
that give me some hope that this might eventually lead to some of those goals being achieved.
- So Jose, PayPal has embraced cryptocurrency as part of its offering. And how do you think
about sort of what Tim is talking about? And how do you think about regulation when it comes to
this space? As a large tech company that has a lot of power and control, but also it sounds
like is trying to embrace this technology and embrace the power of decentralization.
- So we are a large tech company and we are a regulated financial institution. And there are
very few companies that are put in that place. Which I think gives us a very interesting vantage
point of this. Why are we in cryptocurrencies? We have been active in crypto for the last three
years probably. Our first crypto product went to market two years ago. So there are a number of
things that you can do on both on the PayPal and Venmo platforms or on crypto today. But we are
there not because we want to be part of something that might end up being a speculative asset class.
We are there because we believe that a substantial amount of commerce and
payments is gonna move to digital currencies over time. We are a commerce and payments
company. That's what we care about. And we think that for that to happen,
there are three aspects of it where we need to be active. The first one is access. So
For a long time, I've been involved in crypto probably since 2015. Other folks have been there
earlier than that. It has been kind of a niche community. It's a small community. If You think
about the whole number of crypto wallets with any balance, and then worldwide, depending on
who you ask, but it's around 100 million. That's not a mainstream instrument yet. So we care a lot
about access. Many of the people who get into crypto with PayPal, we are their first crypto
experience. And what we care about is there are 400 million accounts in the PayPal universe. If
you're a fan of network theory, and you have a network that has 100 million wallets on one side,
and I had a network that has 100 million accounts on the other side, and you build a bridge,
all of a sudden you have a network that you need to believe that's gonna be way more valuable. So
we care about making this accessible for folks who don't care about 56 cryptography, who don't care
about hardware wallets, who want to explore the asset base under the umbrella of a company and a
brand that they trust. So that was how we got into this space. And we still believe that we have a
role to play in this space. The second one, to the core of what Glen was talking about, is utility.
Neha, in your introduction, you were talking of beware of the solution looking for a problem.
We care a lot about that. And when you think about the most relevant cryptocurrencies that
are in the market today, they work really well for a few defined use cases. Bitcoin was defined as a
peer-to-peer mechanism that is censorship resistant. For that it works really well.
To do 10 million transactions of $10 each in a minute, it doesn't work well for that. It was
not built for that. Ether works really well if you believe that the utility of Ethereum is there's a
global virtual computer that you can run code on, and that Ether is the fuel that you need to pay to
run that code. For that it works beautifully. It doesn't work well if you want to do 10,000
transactions per second. So we get a lot, and the number of tokens that we support in our platform
is very much driven by where do we believe that there is utility. And where people get
by, if they're on the PayPal platform, and then send it on chain to an external wallet,
more often than not, they're doing that because they're sending that one up because they want
to do something with it. They want to send it to OpenSea because they want to buy NFT. They want to
do different things. And we are very intrigued about being able to foster that utility. And
the third one is regulation. There is a fintech conference that is going on now where one of the
CEOs of the companies was on the stage yesterday, and I really liked what he said, which was:
"Well, if you're in financial services and the regulator does not understand your product,
that is your problem and you need to solve that problem." It is important that regulators,
the Fed and other regulatory agencies, are thinking about this space. And it's important that
the community engages with them. Because they're trying to figure it out. They're trying to figure
out what is the right set of regulation. We have been in this business for give or take 25 years,
and we cherish the relationships we have been with regulators. And we want to engage with them,
and we do engage with them, and we want to be part of that conversation.