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Bitcoin, cryptocurrencies, blockchain-- these
are some of the terms you hear in the news
almost every day.
But is it a bubble, or is it the future of
finance?
In this series, we'll bring you some of the
leading voices in the crypto space, who will
help deepen your knowledge of this often misunderstood
world.
In this episode, you'll hear a discussion
between investor Tuur Demeester and Jesse
Powell.
Jesse is the CEO and founder of kraken.com,
one of the largest cryptocurrency exchanges
in the world.
And you're never going to believe where he
got his start in the cryptocurrency space.
Before there was bitcoin, there was World
of Warcraft gold.
Let's find out how he got from video games
into cryptocurrencies that are now disrupting
the world.
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Before Bitcoin, I had a company selling virtual
items and currencies for online games.
Started that in 2001 while I was in college,
and eventually ran it for the next 10 years.
But we sold World of Warcraft gold, Diablo
II magic swords and items.
We did up to about 20 games over the course
of time, and eventually broke off in 2011
to do Bitcoin full-time.
And so, like, these virtual currencies, which
was kind of really relegated to a small niche
of the population, like, people who would
play games, were those the people who would
buy and sell the currencies, mostly?
Yeah, so for the previous business that sold
virtual items and currency for online games,
the customer was usually either a kid or a
young adult, like early 20s to mid 30s.
We had clients from all over the world, obviously.
And people were buying the currency either
to spend it inside the game on whatever kind
of money sinks they had in the game, like
extra features or whatever, or they were using
it to-- in some cases, actually as a real
currency to pay for things in the real world.
We would often hear about kids that were,
like, at school that would want to, like,
buy a brownie from another kid or something,
but like didn't have cash or a PayPal account,
and would say, OK, just like send me some
World of Warcraft gold for this brownie and
we're good.
Or people even paying for, like, car repairs
or other things, you know, if they didn't
have cash or a credit card.
Yeah, that's fascinating.
And then when you heard about Bitcoin for
the first time, like, what was your experience?
And like, did anything strike you about that
as special or interesting?
Yeah, so I was immediately skeptical of it
because there had been many attempts at creating
alternate currencies before that had gotten
in trouble with regulators, like E-gold, as
an example.
And one of the main things that I thought
was preventing World of Warcraft gold from
becoming a bigger thing, despite there being
tens of millions of players, was that World
of Warcraft was-- the currency was tied up
in this virtual economy that was controlled
unpredictably by the game developers, by Blizzard
Entertainment.
And they were opposed to real money trading,
or the exchange of gold for real-world services
or cash.
And I assume they were also in control of
the money supply.
Like, they could decide how much currency
was created?
Completely.
Yeah, so there's actually been a huge amount
of inflation of World of Warcraft gold over
time.
I mean, what cost-- I think it was like $5
for one gold when World of Warcraft came out,
and today it's like $0.10 for one gold.
So it's been hugely inflated.
So obviously not a good store of value.
But even apart from that, you can't ever rely
on your account being there tomorrow.
They could close your account for any reason,
and real money trade is explicitly prohibited
by the terms.
And so they regularly close accounts for engaging
in that activity.
So if you can't rely on your money to be there,
it's not a real good wallet, right?
So it couldn't be used for anything at scale.
And that was, like, the main problem with
World of Warcraft gold.
But what was different about Bitcoin was that
it is obviously completely decentralized.
Nobody controls it.
Nobody has the authority to shut down your
account or be the intermediary to prevent
you from sending money from one person to
the other or prevent you from signing up for
an account.
And so because there are no gatekeepers or
central authorities, it doesn't have those
risks.
And so it solved really what was the main
thing holding back World of Warcraft as a
digital currency from being a bigger thing.
Right.
And when you learned about Bitcoin, what did
the landscape look like in 2011?
Like, how did people acquire it, and what
did they use it for?
So in 2011, people were using it for all sorts
of things, like obviously the famous story
of buying pizza for 10,000 Bitcoin.
There was people selling alpaca socks.
People were selling all kinds of things.
Like largely, like, at a small scale, like
things that they would produce themselves,
or it was like their own family business they
were selling things for Bitcoin just to try
to promote Bitcoin.
So it wasn't used very widely.
People were buying it largely through over-the-counter
trades, like direct person-to-person trading
through, like, the Bitcoin IRC channel, and
also through what was the largest exchange
at the time, Mt. Gox.
So those were the primary ways to get it.
Obviously, the exchange space is greatly diversified
today.
And there's still a lot of trading through
OTC.
Kraken does OTC.
We're seeing now OTC is-- it's more so the
larger players that are using it, like hedge
funds or other-- like, larger financial services
or large buyers or family offices that want
to, like, take a large stake for, like-- and
hold it for a long period of time.
So they're doing big OTC trades, and it's
more the smaller traders that are using the
exchange platform and taking liquidity directly
from the market.
Do you see any technical work being done,
or any possibilities that, down the road,
auditability will improve somehow?
Or maybe are there ways for customers to interact
with exchanges while still retaining more
control of their funds?
I think we'll probably see more of the latter,
less custody held at the exchanges and more
of kind of a multi-sig or credit relationship.
So multi-sig, can you explain multi-sig?
Sure, yeah.
Just very briefly, and what does it mean for
the customer?
Multi-sig means multiple signatures.
So it's basically two of three signatures
required to initiate a transfer.
So in the case of an exchange, it could be
that the exchange has one key or is able to
make one signature, the customer has one signature,
and some other third-party wallet provider,
like BitGo, for example, could be the third.
And so we have a relationship such that--
you know, let's say there are certain rules
in place, like if the trade is under x amount,
then BitGo automatically signs for it.
If it's over x amount, then the customer has
to sign for it, too, where you always have
two of three engaged in the transaction so
that no single entity can steal the coins
or lose the coins.
And the worst-case scenario is that some small
transfer gets through that was, like, automatically
approved because it was below a threshold.
But more than that, there's basically a cap
on the maximum that can be lost.
So Jesse Powell saw how World of Warcraft
gold had the potential to become a groundbreaking
digital currency.
Millions of people were using it, but because
it was centralized, the virtual gold had nowhere
to go.
Bitcoin was the solution to that.
The cryptocurrency industry is growing to
become incredibly diverse.
It makes us ask, what if?
What are the endless possibilities?
Where is it going to go?
Where is it going to take us?
It's going to take creativity, the kind of
creativity that made kids exchange World of
Warcraft gold for brownies as if it were cash.
We hope you enjoyed this episode.
For Real Vision, I'm Ash Bennington.
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