I had the opportunity to sit down with TechCrunch Editor-At-Large Josh Constine at TechCrunch SF. Josh has an interesting background in that he’s spent most of his career covering social media products (and earned a master’s degree on research in the field) in a time when these products are under heavy scrutiny.
He’s also a media heavyweight by any standard, having interviewed the likes of Mark Zuckerberg, Edward Snowden, and Cory Booker and having spoken at 120 events on a diverse set of topics.
CCN: You’ve been covering cryptocurrency for a long time. Now, you’ve really seen them emerge and just burst onto the scene. Whether you’re at TechCrunch just around then, I could tell you that every booth has some mention of blockchain. And even if they don’t, the founders are talking about how they can integrate blockchain into these products.
JC: It’s like the new AI. Last year, every pitch has got AI in it. Now, every pitch has got blockchain or tokens in it.
CCN: Yes. It’s the old “Every company is an AI company.” Now, “Every company is a blockchain company.”
JC: Don’t worry. It seems to be an easy way to add a few extra million to your next route.
CCN: How long have you seen this trend coming for? Mainstream blockchain companies?
JC: I don’t necessarily think of there being that many truly mainstream blockchain companies. I think beyond Coinbase, where we saw a huge flood of users in late 2017, early 2018, spike in prices, I think that was the place where a lot of people got their first taste. But honestly, I think it’s going to be a few more years before we get real mainstream applications for blockchain usage, and I think the main barrier to that is the usability.
Engineering has really been the forefront of most cryptocurrency and blockchain developers, whereas the design, the usability, the UX, has been often left behind. So it falls very far behind on what we’re used to using every day.
If anyone’s used to logging in to Facebook or logging in to other apps using their Facebook login, they might think, “Oh, if I want to use a new crypto-decentralized app, I should be able to just hit a login button, right? “
It’s like, “No, you’re going to have to remember this super long private key. If you type something in wrong, you’re going to end up sending money to the wrong person.” It’s really just very complicated.
I think until the platforms get there and the usability of those infrastructural parts of the blockchain ecosystem get there, it’s going to be really difficult for us to see mainstream adoption of some of these decentralized apps.
CCN: How long do you think that’s going to take? And just to follow that up real quick, we have had some which have been breached two, three, four, five times now. At what point do you think we’re going to be in the maturity of those platforms where users are comfortable with it in their daily lives?
JC: Unfortunately, security is a real cat-and-mouse game. The attackers are always going to be improving their skills, so I don’t think we’re ever going to get to a point where things are just secure. I think the really well-funded companies that have the ability to attract great talent have that momentum. They’re going to be okay. But at the same time, they’re going to have larger targets on their backs.
It’s those medium-sized companies that might be starting to actually steward a fair amount of money or tokens but haven’t had the funding or momentum to recruit the best security talent. Those are going to be the ones that are really concerning.
The problem is, it just takes one bad breach. It just takes one time having your wallet stolen for people to be like, “You know what, this whole thing is a bit too crazy. I’m going to step back.” I think, that, combined with the depression in prices recently has pushed a lot of mainstream investors away from cryptocurrency.
CCN: From a venture capital perspective, what kind of trends are you seeing?
JC: I’m seeing that these crypto companies, at first, we saw a quick wave of games and things like CryptoKitties and things like FameBit that are designed to help you steward your cryptocurrency items and virtual goods. But I think after the downturn, we’ve seen that the real companies that are getting equity funding are these truly infrastructural scaffolding of the blockchain industry.
There are people who are going to be doing things like compound and derivatives trading where you can be able to short and trade on margin for cryptocurrencies or things like 0x where you’re going to have a distributed and decentralized exchange for cryptocurrencies.
These things that you sort of want to have in place before the mainstream are what we’re seeing funding from big companies like Andreessen Horowitz, or even Coinbase itself.
Whereas, the kind of applications and the utilities that get built on top of that stuff, I think the big venture funds are waiting until all that infrastructure is in place before they start investing in the content or the utilities that are built on top.
CCN: As far as a West start-up type company goes, what are you thinking about IBM, even AWS, and their approach to blockchain technologies?
JC: I’ve heard a lot of talk about IBM, but I’ve also heard about a lot of people who think it’s kind of just a bunch of smoke-and-mirrors. That, yes, they might have a bunch of patents, but they’re not really doing very much seriously with it.
With AWS, there’s definitely opportunities for decentralized storage systems and ways of assigning and doing accounting for storage space. Actually, the big company that I’m most bullish on in the blockchain space right now is Facebook.
They have built this small but elite team of product managers and engineers, including David Marcus who was formerly the head of PayPal and was the head of Facebook Messenger for years, and Kevin Weil who was the head of product of Instagram, who launched Stories and really turned Instagram into the powerhouse that we know it is today.
Them, and some other highly elite engineers from Facebook have moved on to this blockchain team. I’m very excited about what they’re going to build. What I think they’d probably end up building is something that allows you to pay for stuff with the kind of advertisers that buy ads on Facebook.
But with the cryptocurrency wallet, instead of having to use actual cash, and for that, Facebook will be able to say, “Hey, get 4% off your purchase when you buy with FaceCoin.” Or something like that.
Also, I think that they may be the one that ends up building that identity platform, that login layer, for the cryptocurrency decentralized app ecosystem.
The same way they built Facebook Connect for games and other apps around the web, they can build a similar identity system for the decentralized app layer. I think those are two really important areas that we’re going to see.
There’s also just lots of opportunities for them in e-commerce because they already have the relationships with all these businesses and advertisers. They’re not starting from scratch.
I think in some cases, it may be easier for the big companies to build blockchain and bolt it on to their existing technology than it is going to be for blockchain first companies to build all of the other infra-business relationships necessary to launch all of these products.
CCN: So Facebook is an addressing point because they have a problem and a pretty big one. That problem is that the users don’t trust them anymore. Do you see them using blockchain to try to solve that issue?
JC: Fortunately, while there’s obviously a lot of opportunity for transparency and the decentralization, which means you’re not going to have centralized meddling or corruption, at the same time, when people hear blockchain, a lot of them think of stolen wallets, giant hacks, Mt. Gox, and these kinds of flameouts.
They don’t necessarily think of it as being a super secure industry. It’s affiliated with the dark web. It’s affiliated with a lot of these scammers and the people who were in the ads business on the internet a few years ago.
I don’t necessarily think blockchain is going to make people trust Facebook anymore. In fact, I’m not sure if there’s a lot that Facebook can do to rebuild that trust. That said, I don’t think people actually care about privacy that much. I think they care about utility, and they care about where their friends are.
The biggest problem for Facebook isn’t that people don’t trust it, it’s that the people’s friends aren’t there, that people aren’t posting status updates anymore, that people have moved on to SnapChat and YouTube and Instagram.
Luckily, they own Instagram so that’s not as big of a problem for them. But really, they need to focus on the utility of their apps more than I think they do the privacy. They need to avoid more scandals, but nobody’s like, “I choose my social network based on privacy.”
CCN: Yes, and I guess they also need to focus on increasing user engagement, which is funny because Zuckerberg, in his New Year post, basically said, “User engagement’s going to go down, profits are going to down because we’re focusing on privacy.”
JC: Yes. I think he’s focusing on privacy but also focusing on digital well-being. I think that’s the real thing that’s weighed down on some of Facebook’s profits. That, and the fact that they said that they’re going to double their security and content moderation force from 10,000 to 20,000 employees in order to prevent election, interference, and hate speech and other content problems on their network. That’s what’s really dragging down profits right now. That, and the engagement issue.
If they want to fix that, there’s a lot of things that they can do that don’t really have anything to do with privacy.
But around digital well-being, they want to have less viral video on the site, because that’s kind of low-quality content that people might watch and spend a lot of time watching, but it doesn’t make you feel good afterwards. It makes you feel empty and like you just ate up a big double cheeseburger. Like you felt good for that one moment, but then you feel awful afterwards. And they’re trying to clean that up because they know that long-term, they need to have people to have a good feeling when they leave Facebook if they’re going to keep coming back for years to come.
I think we’re going to see a lot more focus on how do you make sure every post that people see makes them feel good, or at least teaches them something, rather it’s just lots of blinking, flashing lights in that first one second of the video as you scroll by to capture your attention.
CCN: So the OpenID concept you brought up before is interesting because it allows for Facebook, which already has 2 billion users, probably more, to engage in KYC, which is a huge activity that generates probably hundreds of millions of dollars of revenue. Do you also see that having any effect on user engagement and solving some of the problems they’ve had with people impersonating Americans?
JC: Yes. One of the things that we can rely on with Facebook is that if somebody has hundreds of friends, they’re probably real. It’s really tough to build up that kind of friend network if you’re a fake account, and if you are, you basically are tying a bunch of fake accounts together, so if one gets busted, they all end up falling down like a stack of dominoes.
Facebook does have a really good way of being able to tell who is real and who is fake out there. Hopefully, they’re going to be using that to prevent some of the selection interference in these fake accounts, but like you said, that could also give them a leg up when it comes to knowing your customer and making sure you’re not doing money laundering or enabling fraud.
Again, that’s one of those points where the big incumbents who already have built a lot of these technologies may have an advantage over the smaller blockchain companies who might be in the right place in terms of their primary focus, but they haven’t built up on that backend technology they’re going to need to become a success.
CCN: One other question I have with Facebook, because you said they’re in such a great position to do KYC and identify fake accounts. Why haven’t they been able to execute all that on Instagram? The platform has tons of fake accounts and verification is almost impossible to get, although I’m sure…
JC: I’m sure there’s always the fear that if you start terminating too many accounts, you’re going to end up with some false positives and you’re going to delete some really legitimate accounts. And especially in the last few years when they were truly battling it out with SnapChat, I think they were a little bit worried about that.
In the meantime, they have done a lot with artificial intelligence to start being able to weed out fake comments or spam comments. I don’t think you see nearly as many of those like “Buy Viagra” or “Easy way to make money at home” kind of spam that you see in the Instagram comments like you used to.
That doesn’t mean that there’s not a lot of bots and fake accounts who were trying to comment in order to get you to follow them back so that they can make more money from sponsored posts or just people running bots to increase their own personal following. And there are definitely troubles with that.
I hope that now that they’ve kind of vanquished SnapChat with its actually 3 million users in the last quarter, I think that means that they can stop focusing on the competition and start focusing on those internal fundamentals, and I think that that’s really going to mean focusing on safety and integrity of the service and making sure everyone on there is real.
And, yes. Honestly, when I have friends who use those auto-commenting services, so they comment on all my photos in hopes of getting me and other people to follow them back, I’m just like, “What are you doing? We’re trying to be real people and interact with each other. I can get it if you’re some business, but if you’re doing this for your own personal account, you’re probably just coming off like a jerk to all your friends.”
CCN: That’s interesting. So I’d like to segue back to blockchain real quick. Where do you see this in 3-5 years based on how you’ve seen it progress since you started covering it?
JC: I think what we’ll see is that the focus will move away from “Oh, my gosh, how much is the ethereum price? How much is the bitcoin price?” to “What are the utilities that can be built on the blockchain?”
I think there will be plenty of those in the developed world for new financial services, new ways to prevent corruption in businesses and keep track of things.
But I’m actually really excited about the financial inclusivity opportunities in the developing world, whether that’s being able to create identification systems that are truly immutable for refugees so that they can access services, or provide bank accounts, or something like a bank account to the unbanked in parts of the developing world where you might not want to have some cash on you because you could easily get robbed when security isn’t as good in the physical world. But if you have it on a blockchain, it’s tough for somebody to really steal it from you.
So I think we’re going to see some awesome opportunities, and that’s where the real focus of the blockchain industry will be.
That said, it’s tough to tell where these coins are going to go. I do think it’s probably pertinent for most people to have at least a small position in them given that there’s definitely an opportunity that they go from where they are now to many, many, more zeroes worth a lot more than they are now. But you can only obviously invest where you’re comfortable losing because everything could just go to zero, especially if the cryptocurrencies don’t solve these scalability problems.
Fundamentally, there are so many coins out there that I think are really just giant scams that are basically just people who put out these tokens as a way to get rich, that people should really be focusing on those primary, fundamental coins like bitcoin and ethereum rather than worrying too much about speculating on all these random old coins.
CCN: One other thing I want to get your perspective on. We sat down earlier today with Joseph Lubin who is the founder of ConsenSys. ConsensYs is doing something really drastic. It’s the hub-and-spoke model. They have 50 different companies that, in theory, could be unicorns. I think this is a real pivot from the traditional venture capital model which is, “Let me raise $100 million fund. Let me invest in all these different venture capital companies.” Do you think this is a trend we’re going to see continue in crypto and outside of crypto? Or do you think this is a one-time thing with ConsenSys?
JC: We’ve seen some of these start-up studios over the years, whether that’s north or you just want to call it Lone Pines out of Seattle.
Basically, they have a core team, often with a great product and technologist. And they come up with these ideas and then they farm them out to operators who take them on and the core company and studio keeps a big percentage of the equity. From what I’ve heard with ConsenSys is that their take is outrageous, like 50% or more.
I think what that really signals is that there is a massive lack of legitimacy and proper signalling in the cryptocurrency industry. There are so many start-ups, so many developers out there, and nobody’s really sure who to trust. These start-ups are willing to give away a massive chunk of their equity if they can tie in with a reputable company, with a good name brand like ConsenSys, who might be able to help them with recruiting, and fundraising, and these other things.
I think that’s really just a sign that there’s a lot of lack of trust in the cryptocurrency industry. I’m not sure that as the industry matures and some of that trust starts to accrue, that we’ll necessarily see people being able to get away with this exploitative model of ConsenSys.
CCN: We are in a restless industry. Anything else that you think is a really pressing trend that you want to talk about?
JC: I think some of the most important stuff right now is really around derivatives and shorts. There’s been a lot of ways that you can buy cryptocurrency, but the problem is, when you have them work where you can only buy and you can’t short, it’s easy for bubbles to develop.
So it’s actually really healthy for financial ecosystems to have methods to short these coins. I think that’s going to be very important to the cryptocurrency world to make sure that the prices stay in check and we have less of that massive volatility because nobody’s going to want to use this as a currency or even a utility if the prices are fluctuating so massively.
I hope that we’ll see more start-ups and more developers embracing the idea, offering derivatives, and ways to short cryptocurrencies. I think with that, we’ll see the kind of stability that will bring in the really big banks and investment banks and these massive corporations that control billions and billions of dollars.
I think they’ll only get involved with cryptocurrency once they’re sure that the custodianship and the bubbles and all of these problems have been taken care of.
CCN: I still want to address one point. Intercontinental Exchange, which owns the New York Stock Exchange, just entered with Bakkt. What kind of consequences do you think that’s going to have in the industry?
JC: I think it’s important for there to be accessibility for buying cryptocurrencies because I think there certainly is an opportunity for financial mobility for people. That’s it.
A lot of retail investors are not up-to-date enough on what’s going on in crypto to be able to make wise investments, and I was talking with the Robinhood CEO about this earlier. When they launched Robinhood Crypto in February, the ethereum price was in the $800s. Now it’s in the $200s.
That means most of the retail investors, mostly, like younger kids without that much money who invested in ethereum through Robinhood have lost their money. I think it could be dangerous to offer that much accessibility and democratization of access without the accompanying education.
So I hope that if the New York Stock Exchange wants to tie in with crypto, then it’s doing enough to make sure that the people who do invest there aren’t taking it the way that they invest in a normal stock which probably has a lot more stability.
I want to be out there and do the education and just say, “Hey, this is a volatile market. Never invest more than you’re willing to lose 100% of.” Otherwise, you’re going to end up with more of those horror stories of people mortgaging their homes or taking out loans or using their student loans and then burning it all and then all of their money on crypto and be stuck in debt.