Alex first entered the blockchain space as a research fellow at New America’s Blockchain Technology Accelerator (BTA), where he researched the implications of blockchain and other types of distributed ledger technology (DLT) for the private, public, and non-profit sectors. His research for New America, “The Blueprint for Blockchain and Social Innovation,” was presented in conjunction with the World Economic Forum at Davos. He also authored“Blockchain Technology: A Guide to Analysis, Design, and Implementation” for the Hexa Foundation.
Prior to matriculating to Stanford’s Graduate School of Business, Alex spent several years working as an investor at Tiger Management and Blue Ridge Capital. After transferring to Yale from Duke University, he earned a B.A. in Political Science with a concentration in International Economics and Strategy. He is currently interning at QuintoAndar, a Brazillian startup simplifying rental processes for tenants and landlords.
How’d you get involved in crypto/blockchain?
I think it’s important to differentiate between crypto and blockchain. They’re like a square and a rectangle: all cryptocurrencies, I believe, are built on a blockchain, but not all blockchains are, or rely on, cryptocurrencies. There are a lot of different “flavors” of the technology.
I think I’m a little further distanced from crypto than most of the alums you’re talking to. My involvement was mainly through a research project. I don’t own any cryptocurrency. I have friends in the space, and believe there are lots of smart people in it, but my future does not depend on blockchain’s success, at the moment. I worked in hedge funds as an analyst covering mostly software, media, and internet companies. And if you were involved in the technology space over the last five to six years, since 2013- 2014, it was kind of hard, even as a surface-level technology investor, not to have heard of crypto and blockchain.
So, I began to research it, initially out of curiosity. And when I decided to go to business school and took some time off, I decided I wanted to do something a different from investing. I was considering a couple more traditional internships at startups that had nothing to do with blockchain. But I sat down with the head of the Blockchain Trust Accelerator at New America, and he ended up hiring me to write that paper for him. I learned a lot. I had been researching this space to a greater degree since probably late 2015 to early 2016, and then I pretty much lived in it for about a five-month period, which isn’t particularly long relative to the men and women who are working at it everyday and have been for many years.
When you say you were living in the world of blockchain, what exactly was the Blockchain Trust Accelerator? Were you with other people studying blockchain, or were you kind of doing independent research?
New America is a think tank that is technology-leaning. They tend to tackle a lot of similar questions as other think tanks do and they often do it from a technological angle. The Blockchain Trust Accelerator is one of the arms of the think tank and is focused on blockchain. It’s not a startup accelerator. So, I didn’t have a dog in the fight from the perspective of blockchain. I lived in it because I was researching it. I was talking to, or reading work written by, people who do have their livelihoods somehow linked to it, and that was my full-time job during that period. But I wasn’t working for a company that was going to profit off of the technology. That was partly the point of why I didn’t buy any cryptocurrencies: I didn’t want to be biased, and I thought it was likely I would have at least an implicit bias were I to own cryptocurrency. It’s hard not to believe in something which you’ve invested money into, or something that you’ve bet on succeeding.
What kind of technological innovation would you compare it to over the last however many years?
I’d probably compare it to SSL, or “Secure Sockets Layer” (now TSL). You can research SSL, and it’s basically an encryption technology. Now, a more advanced version of SSL (TSL) exists everywhere. It’s the reason that people like you and I feel comfortable transacting over the internet using our credit cards and transmitting sensitive information online. It’s the reason we don’t think twice about it. TSL works from the backend, and nobody really knows it’s there. It’s not as if every time you click “buy” on Amazon you get a notification saying, “Oh, your credit card information is being sent over the internet using TSL.” It’s just about making the experience better and safer, and I think in many ways, blockchain is similar. In a lot of cases, blockchain is not something that the end-user is going to be aware is operating or being implemented. At least, that’s what I believe.
That is not to say, however, that blockchain cannot have an outsized impact on the world. I think the use cases in which it is most applicable are those in which there’s an immense amount of redundancy due to the involvement of multiple different parties, which provides an opportunity to save costs. That scenario will most often present itself to large, for-profit corporations.
I anticipate that another significant use case will be where there really is no solution at present, often as relates to some of the world’s most under-served populations. That’s where I think the optimist in me is excited about this technology. In many cases, it’s open source; it’s reasonably inexpensive to implement; and, it does have a lot of qualities that are unique and could help solve problems which mainstream solutions can’t either due to cost considerations or physical and technical limitations. That’s exciting.
It’s important to recognize that we’re in the very early stages of this technology’s development. I remind people that cloud technology started–depending on who you talk to– to gain prominence in the early 2000s. Salesforce was really the first company to gain prominence from implementing it. But it wasn’t until the mid-2010’s that mainstream enterprises started to use the cloud at-scale. Even today, there are physical limitations to how much information you can upload to the cloud given global bandwidth constraints. Yet, you can kind of see the growth of cloud by looking at the financial statements of Amazon or Microsoft to see the growth of AWS and Azure respectively. It’s extraordinary.
There’s just a long way to go before blockchains could get to that point, and I think there are a lot of hurdles that blockchain technology and the people in the space need to get over. There are a lot of really brilliant people working on those problems, and I hope they succeed, because if they do, the technology has a lot of potential to help many of those who haven’t benefited as much from the last couple of decades of technological growth.
I don’t subscribe to the “crypto-maximalist” view of obviating the need for governments and companies. I just don’t think that’s efficient. Unless you really, really think that the U.S. government, Walmart, or other large organizations and companies are really terrible, you probably don’t want or need a DAO (decentralized autonomous organization) or a blockchain running everything. My perception is that a lot of what governments and companies do falls into “grey areas,” which are pretty hard to put into code, and are therefore difficult to put into a protocol.
And it just wouldn’t be very fast. At least, not in its current incarnation. There are physical limits to how quickly something that is, theoretically, highly tamper-resistant can process transactions and information. Taking out a middleman has a cost, and you have to balance this desire for security and blockchain’s other benefits with the need for low latency and high scalability that a lot of people have come to expect. I don’t remember the exact data point, but I think people begin to notice delays that are longer than 100 milliseconds. People start to get upset at a certain point that’s over one second. In developed markets, if you have to wait for more than a few seconds for your Google result to load, that is really slow.
Now, a Bitcoin block, on average, is confirmed every 10 minutes. You don’t get your “satisfaction” for those 10 minutes that your transaction is being registered on the blockchain. And if you want it to be highly tamper-resistant, you need to wait for six blocks to be confirmed before you can feel reasonably sure that the data will be there permanently. That’s orders of magnitude longer than a lot of people have become accustomed to have things on the internet happen, whether that’s buying a new pair of shoes or loading a search result. Bitcoin is an extreme example, and you can design different protocols with different objectives and capabilities, but there are a lot of cases in which blockchains just don’t make sense. On the other hand, there are some situations in which the drawbacks of the current system are such that it makes sense to implement something that is less efficient, for instance, in order to have improved security, or for individuals to have greater control of their data. And I think that’s a valid and logically consistent argument that many in the community have made.
However, consider this: A lot of people are unhappy with Facebook every time they read about another data or privacy breach. But if you look at the number of people who’ve dropped Facebook, it’s really low. It’s possible the churn is being made up for by new users. But if you look at the number or users, it hasn’t gone down, in spite of one of the most publicized data breaches in the history of the internet. What if I said you can have an alternative but that the alternative had really significant costs associated to it? You can have all of the features, but it’s going to take 30 seconds to load one of your friends’ pictures, or 10 minutes to invite people to your event. These are trade-offs, and it’s an individual choice. That’s what I think is really cool. When someone joins a blockchain network, they are implicitly agreeing to the protocols on which that blockchain is based. You have the choice to be on it, and you have the choice to leave it. But, you’re agreeing to the rules that have been pre-established.
Why is that different than “terms of agreement?”
Terms of a blockchain are cryptographically-backed. At least in a well-designed protocol, the core of how that blockchain is going to be determined by code, not by a lawyer who decides whether an action is within the bounds of a company’s terms of agreement or not. Second, the core rules of a blockchain protocol aren’t subject to modification after it’s released “into the wild”. Company rules are often modified or not followed. The Cambridge Analytica scandal, for example, was contrary to Facebook’s terms of agreement.
I want to stress that what differentiates a blockchain from terms of agreement is that for a piece of data or a transaction to be recorded on the blockchain, it has to be valid in accordance with the predetermined set of rules that can’t be changed and that aren’t subject to human judgement. A small group of people may have designed those rules, but once the protocol is released, it’s out of their hands for the most part.
If I grant that companies often change their rules “terms of agreement” because of consumer demands and so on, isn’t that maybe empirical evidence that it’s impossible to predetermine the rules of the game?
Yes, and I think that from the perspective of organizations, non-profits, and governments, rules need to change. The world changes. And the way that you would design a database today is very different than the way you would have designed a database in the early 2000s or the 1990s. A difference between a blockchain and a traditional database is that you can probably modify your database from the 1990s and update it when new technologies come along. It might be a pain and it might be expensive, but you can do it. This is a drawback of many public blockchains from my perspective.
Technically you can make certain changes to a blockchain under certain circumstances but those changes are transparent and they are more like suggestions. They happen through a mechanism called forking. The idea of “forking” is you can suggest a new set of rules, and participants can choose which version of the blockchain to stick with.
The best example of this was a big hack on Ethereum a bunch of years ago called the “DAO hack” if I recall correctly. Around $70 million worth of Ethereum was stolen, and everyone knew it was stolen. The community, or at least a large portion of the community, decided to “fork” the chain and basically invalidate the transaction in which those coins had been stolen. There were then two versions of Ethereum, and depending on how ardently you believed in this idea of irrefutable transactions, you could choose to be part of the original chain or you could choose to be a part of the new chain. Validators on the blockchain expressed their choice by programming their algorithms to view one version of the chain as the true “longest chain”– their perception of which chain was the “real” version of the truth. That may sound like something from The Matrix, but one of the cool things about blockchain is that there aren’t necessarily great parallels to it, which is scary and exciting at the same time.
I think it’s important to recognize… In fact, it’s one thing I actually do agree with the crypto-maximalist community about: since the departure from the gold standard, the only thing really underlying fiat currency is faith. I accept a dollar from you because I expect or believe that a person with whom who I’m going to spend that dollar is going to accept it too. And that’s not actually that different, at least theoretically, from what a Bitcoin is.
There are differences and issues in terms of there being no monetary policy and that a blockchain can’t raise taxes etc., but the argument is that major cryptocurrencies and fiat currencies are both based largely on faith. The fact that there isn’t a monetary policy associated with cryptocurrencies is actually something that some people find attractive, and depending on your political leaning and economic beliefs, you may agree with them. There are many people who think what the Fed has been doing over the last several years has been irresponsible in keeping rates as low as they are– and others who believe we wouldn’t have made it out of the recession if the Fed hadn’t promised to keep rates low for a long period of time.
Switching up a bit– did you have exposure to crypto and blockchain while you were at Yale?
Not a lot actually. I was unusual in that I started interning part time a hedge fund during school. That’s when I first started to hear about the technology, but it wasn’t from my peers. It was from my work. I can’t say that it was really a huge deal– at least not in my circle of friends while I was at Yale. My circle of friends was super eclectic. I was very lucky to have friends with a lot of diverse interests, and even luckier that they were willing to put up with me. But I can’t say that I remember anyone being a particularly ardent advocate for or against crypto.
Should Yale be investing more in crypto and blockchain?
I think this is going to be one of those “hindsight is 2020” type of things. I was not a Computer Science major at Yale. I remember my Computer Science friends complaining about certain things in the department, but I do not have much personal experience with regard to how resources were or are being allocated in that area. And to be honest, I haven’t kept up with how the school has allocated capital toward Computer Science, let alone blockchain. As you noted, I’m just cautiously optimistic around the technology. And I hope that some of what the technology’s advocates say will happen does happen. But from an investing perspective, I will be sitting on the sidelines (from a cryptocurrency perspective) until the industry gets over some hurdles.
That said, I see the argument in favor of investing in some aspects of blockchain technology and some protocols from a risk-return perspective. I think the people running Andressen’s crypto fund are really smart, and apparently they do very good work. If things play out the way some advocates say they will, some of those investments are going to be worth billions of dollars. The downside is that, like most venture investments, if they’re wrong they’ll be worth zero. From a risk-return perspective, that’s a good proposition within a diversified portfolio. Even if you assign a really small probability to the upside outcome, the net-present value of that investment is probably still pretty high. Whether it’s higher than a typical venture-capital investment, I don’t know.
Obviously, you don’t want to bet the house on it because if you’re wrong, you lose all of your house. A lot of people don’t know what blockchain is. If you watched the Facebook hearings you can probably tell that our government–to put it kindly–is behind the curve on a lot of technological developments. And Blockchain is very early stage, fairly-cutting edge technology, so I’m not surprised to see the government pushing back. For a lot of people, I think that if they even recognize the term “blockchain,” then it’s analogous with Bitcoin, and that, to them, is analogous with drugs and ransomware. Hopefully that changes over time.