Ari Paul, CIO & co-founder of BlockTower Capital, is a well-known investor in the cryptocurrency space. With this interview, he kicks off the inaugural edition of ’10 Questions in Crypto’, where I ask the most influential names in blockchain and cryptocurrency to unpack their ideas about the space using the 10Qs in Crypto Questionnaire. (Answers have been condensed and edited for brevity and clarity.)
Question 1: How do you describe what you do to someone who doesn’t know anything about blockchain or crypto?
Ari Paul: The really short answer is that I usually say I’m a fintech investor — a financial technology investor. (It’s the intersection of tech and Silicon Valley with finance and Wall Street.)
Question 2: What’s the overall state of the space right now? (What’s the best metaphor to describe it?)
Ari Paul: I think we’re in the trough of disillusionment right now. That’s a term of art within a ‘hype cycle’ model. Typically, you have a speculative fervor of optimism around new technology. With the internet, it was in 1993 or 1994. Everyone thought the world we have today was just a few years away — that we’d have massive retail sales over the Internet, that we’d have high-quality streaming video, that we’d have the world’s supply chains online. Typically, that [kind of progress] takes a lot longer than people expect. At some point, valuations get way above the present. People start looking too far ahead. Then people realize the thing they thought was six months or eighteen months away is maybe three or five or ten years away. And then you typically get a crash and disillusionment.
Question 3: What’s the most important problem to solve before blockchain/crypto can become mainstream?
Ari Paul: I think there’s a handful that all kind of come together — but if I had to pick one it would be user interfaces. Within that, I’ll pick a subset: Key abstraction. Right now, if I want to send someone cryptocurrency, I generally need to copy and paste their public address. That address is an arcane series of letters and numbers. That’s a very scary process — because, typically, those transfers are irreversible, and a relatively minor mistake could be catastrophic. That’s just one example of how hard it is to have comfort doing even the simplest things in this space.
Question 4: What do you think the first truly indispensable use of this technology will be?
Ari Paul: I think it’s already here: Censorship and seizure resistant money. WikiLeaks was accepting donations in bitcoin back in 2011. People are making use of cryptocurrency in Venezuela, Zimbabwe, and around the world — they’re just very few in number currently. But, to those who use it, it’s already indispensable.
Question 5: What project that you’re not involved with is most exciting to you?
Ari Paul: A project that I’d single out is Blockstack, which is run by Ryan Shea and Muneeb Ali, who are both brilliant developers. Blockstack is an ecosystem for an internet where people can have ownership of their data. The idea is that people can build decentralized applications, like a version of Facebook where Facebook never sees your pictures — but, rather, you the user get to share your pictures on their platform with the people you want to share with. The pictures are encrypted and can be decrypted automatically (client side) only by the people who you want to give that permission to. So that example of a decentralized Facebook is something that could be built on top of Blockstack’s platform.
Question 6: What’s your most shocking prediction about the future?
Ari Paul: I think fairly soon many countries around the world will work very hard to prevent people from physically leaving the country as a result of cryptocurrency. Right now, people can flee a country — like Syria, Iran or China — with just the shirt on their back pretty easily. Countries might not love that…but, very soon, people will be able to take large amounts of wealth with them when they exit. So an oligarch in Russia or China, if they are able to physically leave the country, can then take a meaningful and non-trivial percentage of the country’s wealth with them. The only way you can prevent that is by physically preventing the individual from leaving. So the prediction is that many countries around the world will physically prevent their citizens from leaving the country to prevent them from escaping with their wealth.
Question 7: Is crypto a bubble or a buying opportunity — and why?
Ari Paul: My answer to this has changed, almost quarter by quarter, over the last year. Right now, I would say with strong conviction that it’s a long-term buying opportunity. I say long-term, but I’m not calling a specific bottom or price. But I would definitely say it’s a long-term buying opportunity. I think we’re in the trough of disillusionment. I think a lot of the excessive optimism has been washed out of the system.
Question 8: Is code law? (Also. What does ‘Is code law’ mean?)
Ari Paul: Definitely not. Code is not law. That statement refers to the idea, generally in association with a smart contract, which is a term invented by Nick Szabo, that computer code in some ways mimics the role of law in the normal world. So it could be, for example, code that executes a business contract on its own. The reason I say definitely not is that computer code can be very good at very simple operations, where the inputs and outputs can be clearly defined. But that is very hard when you have this code interact with the real world — with the complexities of regulation, economics, politics, people, and unforeseen circumstances. I think, at least until there’s general AI, you’re not going to have high-level legal contracts purely in code.
Question 9: What scares you the most about this technology?
Ari Paul: A major thing that scares me is the possibility of extreme wealth concentration — with the holders of that wealth being people of a particular psychology, reflecting the way they achieved that wealth, in some cases from passively investing, and getting wealthy extremely quickly. What does a world look like when those are the oligarchs?
Question 10: What are you most optimistic about and why?
Ari Paul: The technology is advancing incredibly quickly. The amount of development on both the engineering side, as well as the product facing side, is tremendous. it’s progressing at a pace, I think, more than 5X of last year. The amount of talent that flowed into the space, and the amount of capital, has been tremendous. So I’m very excited about things being built.