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Lou Kerner Interview Transcript


 

Lou Kerner:

Yeah, that's a question that I get asked a lot and the best answer that I have, I actually wrote a blog post about this just a couple weeks ago, and it was actually the very [inaudible 00:31:23] because it was the number one post on Medium in crypto for three days, which drives huge following. So it was awesome and what I wrote in that, there were two things. The first I described, what's going on now in crypto as a Cambrian explosion.

So like four and 50 million years ago, there was no life and then you had the Cambrian explosion and then boom. You had all of these new life forms. And over time, most of them died out but the ones that were left were epic and that's what it feels like in crypto. It was like there was nothing here and then all of a sudden, boom and we have all of these companies and we're gonna have more and more and more.

And a lot of them obviously are gonna die out but the ones that are left, I think are gonna be epic and when I'm asked about the bubble, what I really believe ... I showed these three slides and the first is the Amazon Share Price from '97 to '99, which is up more than 70X. This is just a straight up into the right ... Actually, it looks like Bitcoin over the last little period of time.

And then the second slide is I extend that out two years. So now I'm going from '97 to '01 and you have that violent up and you have violent down more than 95%, arguably the greatest company in the history of the world down more than 95%.

And so, it looks like it's a bubble and a bubble crashing but then I have 16 more years so going from '97 to 2017 and Amazon Share Price is way up here and if you look back at what felt violent up, violent down, it's not a bubble. You know what it is? Now, it's the context of time. It's a blip, right?

So I don't really worry about a lot of people are focused on what bitcoin is gonna do in the next five minutes and that's great. You can make a lot of money if you're good at that. I'm more focused on the issues about how we get from where we are today to where like, oh my god, I'm pretty sure we're gonna get there but we could screw it up.

Adam Chapnick:

Your VC, you are focused ... Are you shifting focus heavily into this world?

Lou Kerner:

Sure. So my quick crypto story is I went down the crypto rabbit hole for about nine months in 2013. I did it long enough that the Wall Street Journal quoted me in a story as a Wall Street's Bitcoin expert. And so that was fun to be that for but yeah, I described it. And kind of I looked at the light and I looked at the light and I looked at light for nine months and I didn't see it. And then fast forward when I co-started taking off in June.

So a little more than four months ago, I held a conference call. I do a whole conference call with smartest people in the world and get them to teach me about stuff and I get hundreds of people on the call and it's great for everybody. Olaf Carlson-Wee from Polychain on that call said something. It was like, "Oh my god, I see the light." and that was June 29th and that day, I stopped everything I was doing. I stopped everything else that I was doing and and have been 100% crypto ever since.

I started writing, writing, writing, writing and then I got an email from Medium saying, "Congratulations, you're a top 50 writer on Medium." I didn't know that was a thing. On Bitcoin, I was 48th and I've continued to write and write and write. Medium, it's amazing thing if you write good stuff and people like it and you get a virtual circle going on.

And today, my proudest achievement so far in this industry is I'm number four now in terms of influence on Medium and I'm also as a VC, I migrated over time to focusing purely on tech companies founded by Israelis. Israel is just an amazing, amazing country. Book Start-up Nation was written nine years ago about all the reasons why Israel's so amazing on a per capita basis, far more startups and than any other country in the world and much more importantly, even as many startups that they have, they're even better at exits, which actually as a VC turns out to be important.

And it's amazing as the world thinks Israel, I have no doubt that the world still has no idea how amazing Israel is. And so 100% of my time is on crypto and I'm trying to maximize the time I spend at the intersection of crypto and Israel because they're doing amazing, amazing things there.

Adam Chapnick:

Wow! So June 29th, everybody. Very important day in crypto.

Lou Kerner:

I will remember that forever seriously.

Adam Chapnick:

I don't doubt it. So different people get sort of sparked into enthusiasm for different parts of what's possible in this ecosystem. A word that I seem to use more than I used to but do you remember what it was on that call that made you really see the possibility? And then furthermore, whatever it is about Israel that makes that a good nexus?

Lou Kerner:

Sure. Well, again, what I think a lot of people see is that you get the combination of blockchain and what I talk about is blockchain is trust. And it's really funny. Some dude just tweeted, I just got done doing the keynote here and you look at your tweet and see what people say and one guy wrote wrote me that it's not blockchain does an equal trust. Blockchain negates the need for trust, which is kind of I think even a more elegant way of saying it, right?

If it's on the blockchain, you don't want to need to trust anybody. And so it's that combination of the blockchain, which negates the need for trust apparently and cryptocurrency, which enables you to pay people or reward people or incentivize people to do what you want them to do or reward them for doing certain things like mining or whatever it might be that can drive this ecosystem you talk about.

And the two of those in combination are enabling decentralization. And so now, we don't need to have somebody there in the middle telling us the way things are gonna be, whether there's been some great posts about the end of the firm. You have a firm in large part because you need trust and so we're at the very, very beginning of this. It's a Cambrian explosion. Nobody knows where it's gonna be.

I've written one thought piece called Seven Thoughts after three months down the crypto rabbit hole and thought number one is nobody knows anything.

Adam Chapnick:

Yeah, nobody knows anything. That definitely feels that way. I could attest to that. So in terms of where you see this going, you mentioned something that I agree is exciting, which is the idea of being able to influence people's behavior with things like the mining, whatnot. I don't hear many people talking about that as one of the promises. Is that somewhere that you're looking in terms of your investing strategy?

Lou Kerner:

Yeah, the way that I talk about it and other people do but it's still very, very early is token economics. When you set up these economies and what's interesting is I've gone down that rabbit hole because it's so important to the success of these companies and it's so early.

I really believe in 10 years, you're gonna have kids graduating. The smartest kids from UCLA are gonna be graduating with degrees in token economics and they're gonna be graduating with degrees in decentralized governance because I think that's the biggest risk that we have is governance of all these decentralized organizations.

We've seen with Bitcoin, in some ways, I think there's a whole thing that democratization is the worst form of government ever created other than all the others, right?

Adam Chapnick:

Right.

Lou Kerner:

And in some way, that's what I feel about Bitcoin. It's the worst decentralized governance ever created other than all the others. It's crazy all these year later, it's still the best but I think if smart minds focus on governance and there's no panacea. It's what trade-offs do you have. The trade-off with democracy we've made is we get Donald Trump. Some people think that's a good thing, others not so much but so you're gonna have a series of trade-offs but we're gonna get much better at governance. We're gonna get much better at token economics.

The closest thing that we can look at is the smartest guy today that I've talked to by the name of Tom Bollich and he started talking to me and just blew my mind. Like the first couple of things he said, I said, "Well, hold on a minute, who are you and how did you get this knowledge?" And he said he was one of the founding eight guys at the Zynga. And he created the token economics for Mafia Wars and other games.

And so they're incentivizing them to try and get them to do things, which is largely spend more money obviously. The smartest people I've met now are when I think of token economics, I think of governance, game theory and in the middle, in the intersection is token economics.