Running with Unicorns, a Crypto Podcast by Gem
Running with Unicorns, a Crypto Podcast by Gem

Running with Unicorns Ep. 2

Can Cryptocurrency Cross the Chasm? / Micah Winkelspecht, Gem

December 13, 2018

A conversation with Gem CEO and Founder Micah Winkelspecht about the forces that are shaping the volatile cryptocurrency markets and the evolution of the decentralized ecosystem.

“When I think about what’s happening in crypto right now that’s really exciting, it’s the things that bridge the gap from the early adopter set to the mainstream audience.”

– Micah Winkelspecht, CEO and Founder, Gem

In This Episode
Micah Winkelspecht joins us today to analyze the forces that are shaping the volatile cryptocurrency markets and the evolution of the decentralized ecosystem. Micah offers insights into the many pain points that are confronting the industry and what it’s going to take for digital assets to cross the chasm into mainstream adoption. Chitra spoke to Micah in early October, just two weeks shy of the 10th anniversary of the Satoshi Nakamoto white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System.”

In this in-depth interview, Micah describes how his casual interest in cryptocurrency as a software engineer in 2010 turned into crypto evangelism after reading the Satoshi white paper in 2013. He fell down the cryptocurrency rabbit hole from which he hasn’t yet emerged (and likely never will). Having been through four crypto down-cycles, Micah offers tales from the front to help us put the current market volatility in perspective and looks ahead to how the decentralized ecosystem will evolve over the next decade.

Topics Covered

  • How Micah got started in the LA crypto scene
  • What’s motivated him to stick through the volatility
  • The resilience of the Bitcoin network
  • How crypto has evolved into a movement
  • Other examples of the decentralization movement
  • What got him excited about cryptocurrency
  • How crypto is deeply personal to him
  • The power and responsibilities of creating money
  • How Bitcoin was a direct response to the 2008 financial crisis
  • Trends and factors that will shape this movement
  • The importance of CryptoKitties as a first step towards making crypto mainstream and waiting for the true killer apps
  • The fun and promise of digital collectibles
  • The pain points of crypto today and how to overcome them
  • The importance of crypto portfolio trackers
  • How crypto was founded to give people control over their own money, identity, and data
  • Looking ahead to a billion new crypto investors entering the market in the next five years
  • The challenges of building platform technology and how they affect the cryptocurrency market
  • Looking into the crystal ball on how the industry will evolve
  • On the elimination of the middle man
  • On the inevitable “Bitcoin is Dead” bear market hype including this latest one
  • Can past trends and lessons to help us understand the current market and where it may be headed
  • Advice to new investors: Tread with Caution
  • Closing thoughts and key takeaways

Guest Contact Information
Micah Winkelspecht
CEO and Founder, Gem
Website | LinkedIn | Twitter

Questions and Comments
podcast@gem.co

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Chitra: Hello, and welcome to Running with Unicorns, your portal to the world of cryptocurrency. I’m Chitra Ragavan, Chief Strategy Officer at Gem. Today’s topic is trends in the cryptocurrency market, our guest is Micah Winkelspecht, CEO and Founder of Gem.

Chitra: Welcome to the show, Micah!

Micah: Thank you for having me.

Chitra: Now, you’ve been in the space almost a decade and almost from the beginning. Tell us how you got started.

Micah: Well I started pretty early in the history of bitcoin. I discovered bitcoin around 2010/2011, really just because I was a computer programmer and I was reading hacker news and bitcoin popped up on my radar and I played around with it, but back in 2010 it was such a small, little community I kinda forgot about it for a couple years and then in 2013 a computer programmer friend of mine was starting to trade bitcoin and I was like I remember bitcoin I should take a second look at that and I went back and read the white paper and I fell down the rabbit hole like many people do.

Chitra: What was it at that moment that struck you?

Micah: You know, I think when you read the white paper it talks about electronic digital cash right as a concept. When you actually read the text, it’s only 8 or 9 pages, I recommend everybody reads it – when you read it you start to realize it actually has very little to do with electronic cash and has everything to do with reshaping and reordering the way people connect with each other at a fundamental level and the way we build our society and systems of trust to work together – and when you start to see that it’s like your mind activates and you realize this is going to touch every aspect of our lives. Cash is just one application. And I think I could see that pretty early on. I had no idea where it was going to go – and I’ve always been surprised every day about where it’s going, what kind of new cool things are being built. But, you know, you just had that spark of imagination – I don’t know what this thing is gonna be, but I know it’s gonna be big, and I know I need to be part of it.

Chitra: That’s great – and you’ve stuck with it. You’ve been through the up cycles, probably a whole bunch of down cycles – what has motivated you to just stick with it through the ups and downs? It’s probably been tough, some of the downs.

Micah: Yeah, sure. Bitcoin has peaks and valleys – I guess all markets are like that, but bitcoin – it seems especially sharp, right? It becomes a real challenge because, when there’s this peak, this euphoria of people coming into the space, it’s obviously exciting but it comes with it’s own set of problems. It brings with it a lot of noise. Trying to separate yourself from the noise is always difficult. And then when it crashes (and we’ve seen many crashes), all of a sudden that enthusiasm dries up. So weathering those storms really requires someone to have a pretty steady hand and to honestly be a true believer, and I think that’s what has kept me in. When I started this thing it wasn’t really about making money, it really was about the technological philosophy behind bitcoin that got me so interested, and that hasn’t changed. Just like bitcoin is a resilient network, I think the people in it are a resilient network – we are propping up and supporting this with our beliefs and our philosophies, and that’s a lot harder to tear down.

Chitra: Because back in the old days, it was kind of a lonely time. Right now, everyone is talking about it, everyone is familiar with it, but back then you were among a smaller group of people that actually fell in love with this.

Micah: Yeah, I was talking about like – when I got first really involved in 2013, I was trying to figure out how to get involved, how to get to know the community, so I went on meetup.com and I looked at all the potential meetup groups for Los Angeles. There was only one, I went to my first meeting in 2013, it was in a park, right in Downtown LA, right by a fountain and it was like 15 people meeting together in a park, I’m pretty sure two of them were Silk Road drug dealers, you know, trading bitcoins in the park – people just thought it was really cool. It wasn’t about making money or anything. When I went to that meetup I just thought – this is such a small thing for such a big idea. Why can’t we take this idea to a lot more people. And that’s when I started to get a lot more involved in the community. I started to run my own meetup events in LA. I started to invite the Silicon Beach crowd, the more technical crowd, and we started hosting a lot more events. We ended up growing the group from 15 people to 1000 people in about a year. We would regularly have 100 people show up, we would have Andreas Antonopoulos fly in and you know, give talks and that was exhilarating and it really just sparked this community in LA.

Chitra: Can you now talk about how crypto is not just an instrument in finance – it really is a movement. What is driving this movement do you think?

Micah: Bitcoin and digital cash and disrupting the financial system is just one aspect of a much larger movement around decentralization in general. The decentralization movement is something that has been steadily building for decades now and is now reaching a fever pitch. I think that it really is going across all sectors, not just finance. We talk a lot in crypto about disrupting the banks, these sort of central institutions of power that we rely on. Maybe we can build a way around them, maybe we can decentralize them. But decentralization also has movements in other industries, like in energy for example. We are very progressively moving from a highly centralized grid structure where power plants are massive, huge centralization risks. Fukushima is obviously a good example of that. We’re migrating and moving towards something that is a lot more local, a lot more centralized with solar panels on people’s roofs generating electricity. Pretty soon we’ll have robust marketplaces where individual producers with solar panels on their roof can not only produce energy for themselves, but also sell it back to their neighbors in a peer-to-peer way. So we’re starting to see this emergence of this grand decentralization movement take hold. So what got me so excited about not just cryptocurrency, but blockchain technology and the sort of web 3 set of technologies that we’re building right now, but in a lot of ways this is the enabling infrastructure to actually build large scale decentralized applications and services for this new economy. So it really is this sub street on which we can build this new future. We’re starting in money – we’re quickly seeing that people are building cases in provenance tracking in food supply we’re seeing energy exchange, we’re seeing all different types of use cases emerging and it’s really exciting.

Chitra: Some of your belief in this movement and your core financial philosophy and you’re a student of money, a lot of this evolved after the 2008 financial crisis, so a lot of this is deeply personal to you.

Micah: Yeah, you know – in the financial collapse, I don’t think I was that connected to money at the time – I didn’t have a career in banking or anything like that. The reason why I started thinking really deeply about it is because, like most of us in America, we were pretty clueless about how money worked until the financial collapse happened, we never even imagined that that could happen. My parents and my family and many people’s families in this country got really deeply affected by the collapse. So that for me sparked almost this intellectual curiosity about learning at a pretty fundamental level how the financial system really works. So when you start to pull the curtain back and you see the actual guy behind the curtain – to use the Wizard of Oz metaphor, you realize see how brittle it actually is. And how unfair it actually is. There is a lot of power in creating money and the right to create money – it’s a highly centralized process at the nation state level, with basically a kabal of banks running the financial system. Once I started learning how the federal reserve works, man it really sparked a fire under me. And right around that time Satoshi Nakamoto almost in direct response to the financial collapse – in fact if you look at the Bitcoin blockchain he published a headline of an article that was referring to the financial collapse as one of the first hashes or sort of first secret Easter eggs in the Bitcoin blockchain. So this was a technology that was almost a direct response to the collapse of the financial system – so I had this interest in the financial system and this interest in technology so these two things merged in a way that I gravitated towards.

Chitra: Looking ahead, what are some of the trends or factors that will shape this movement?

Micah: We’ve tried many things over the past several years, so I think in the early days, everyone really believed that the first big use case was, you’re going to use bitcoin to buy a cup of coffee at Starbucks – we would use that language all the time. In a matter of years, every single point of sales system is going to accept bitcoin and you’re going to have this digital wallet you will walk around with. We realized pretty quickly that this wasn’t the first use case. Largely because in a pretty advanced society like the United States we have really good decent alternatives for that. We have credit card networks that work at scale and bitcoin was not quite working at scale. I think that use case is still really relevant, it’s just not the first one to drop. So I think a lot about what are the use cases that are actually going to bring in droves of new people, what’s that killer app, and I still don’t know the right answer to that, but I would say I’ve seen some surprises along the way. CryptoKitties, when I first saw it, you wanna take this most amazing piece of technology we’ve ever created, that can disrupt the world from a centralized system to a decentralized system, and the first thing we can do to prove the value of it is to create this game that allows for you to trade digital cats. It’s a bit laughable at first–

Chitra: Unlikely.

Micah: Unlikely, yeah. And then when you peel the onion back and you take a look at it, there’s something kind of magical about it. Because the people who were showing up to buy a CryptoKitty or trade a CryptoKitty or breed them, they weren’t the same users that were meeting me in the park in Downtown LA trying to trade around bitcoins on their laptops. This was a whole new audience that was interested in this for a totally different reason. And a lot of it was just to have fun. So when I think about the things that are really exciting going on right now, I think it’s the things that bridge the gap from the early adopter set and the mainstream audience. And the most relevant example of that is Dodgers Stadium and the Dodgers just released digital collectable bobbleheads to drive engagement of their fans and to encourage people to show up to the games. So now there’s this whole new world, this universe that can be created around digital collectables that are tradable. In the same way that we were excited as kids about baseball cards and comic books, now we’ll have the digital equivalent of that and it makes perfect sense. And it appeals to a much wider audience. So that’s the stuff I get excited about, bridging the gap.

Chitra: Going back to that cup of coffee – there are a lot of pain points in crypto today. Buying it, selling it, trading it, reporting taxes on it – there’s friction at every stage. There are a lot of different pain points which makes it difficult to do those simple things like buying a cup of coffee that is so easy with cash or a credit card. What are some of the pain points that you’re working on now?

Micah: We take a very pragmatic approach to the market. I’m super excited about digital collectables, I’m super excited about the future applications of peer-to-peer energy exchange networks. But a lot of the use cases you see in crypto right now are still pretty far out, and they’re going to take several years to advance and get that movement. I think as a company we take more of an immediate approach towards solving today’s problems vs. tomorrow’s problems. If you look at the most activity going on on the blockchain right now, it’s that people are investing in this decentralized future by acquiring tokens and keeping track of their own portfolio of tokens. And I think that’s good for the entire economy, it brings new money in, it actually funds lots of teams of brilliant engineers that are trying to build the future. But there are some really big challenges that already exist in the market if you’re just trying to invest in a portfolio. So some of the problems that we’re trying to solve are some of the most basic things. If you want to build a portfolio, right now you might have your coins on Coinbase, you might have some on Binance, you might have 5 or 6 different exchange accounts plus some hardware wallets on the side, you’ve got mobile wallets, you’ve basically got coins spread all over the place.

Chitra: You’ve got passwords…

Micah: Yeah, and it’s a nightmare to try and keep track of it all. And good luck if you want to pay your taxes, because somehow you have to figure out all the transactional histories, what they were worth at that moment in time, you know historical prices – so there are all these problems that come up when you are trying to do some basic things like build a portfolio in the space. So our first product is really to build the most connected and best portfolio tracker on the market, so we’re simplifying that experience by allowing you to enter whatever transactions you have no matter where they are, no matter the token – and we support over 2000 tokens – but also we’re allowing you to directly connect to over 25 different exchanges to pull down and keep your accounts in sync automatically – kind of like a Mint for crypto.

Chitra: Where do you see this evolving from there, what are some other things you have in mind on the roadmap?

Micah: You know, I’m a huge proponent of the idea that crypto was founded on – which was that crypto enables and empowers individuals to be able to take control over their own money, their own identity, and their own data. So I think on our long-term roadmap we are always building towards that future. And a key part of that infrastructure is building a wallet that is under your control, you know, most of the coins that are out there are typically left in accounts on exchanges. So that means that everyone is essentially trusting that the exchange will protect that money for them. To me, that’s a bit antithetical to the entire mission of crypto. And I get that there’s benefits to doing that and you can trade it more frequently – but I think that for the most part, the reason why people leave money on exchanges – there aren’t a lot of great alternatives that are easy to use that are really consumer-friendly to be able to simply manage that on your own. We think that we can provide that experience for a large number of users as a really good alternative to keeping your money on the exchanges.

Chitra: And it has been predicted that a billion consumers may enter the market in the next 5 years. Looking at that market opportunity, where do you see this movement heading, where’s that end point if this is indeed a movement?

Micah: Well I don’t have a crystal ball so – that’s the interesting thing about platform technologies. When you’re building the platform, it’s extremely difficult to predict what will be built on top of it. When we were first building the Internet, it was a bunch of professors talking about how they could move scientific research between universities, and now it’s a tool that every single one of us uses in our daily lives to connect with every single other person on the face of the planet. I don’t think that anybody would have been able to predict the success of Facebook, Twitter, Google, all these other companies that emerged. And I think crypto is having that moment, too. We’re just about to emerge from having built the platform layer – we still haven’t really finished construction on it but we’re getting to a point now where these platforms and these systems are getting a little more advanced, and we can start to build new types of applications that could actually scale to thousands of transactions a second – so when you have that kind of tool in your hands and you have that platform to work with all of a sudden it opens all these new doors for building new types of decentralized applications, new types of services that you just couldn’t imagine. But if I were to put my crystal ball on the table I would say I would look at some of the things we already do, emerging behaviors that we already have and imagine decentralized alternatives for them. So if you look at Uber, for example. Uber is nothing more than a big giant marketplace for people who want a ride and people who are willing to give a ride. And the only thing currently enabling them to connect is this sort of centralized entity in the middle, this company. Crypto allows us to build a decentralized version of Uber that just directly connects somebody who wants to give a ride and somebody who wants a ride. So I think when we think about this movement towards the gig economy, where people don’t have traditional jobs they’re just sort of lending their services – TaskRabbit, Uber, Airbnb, all these types of networks, these are ripe for disruption with decentralized networks.

Chitra: And even the cryptocurrency exchanges are likely to get disrupted with decentralized exchanges.

Micah: That’s absolutely right, so right now it’s very profitable to be a high volume crypto exchange. But there’s a lot of rapid advancement on this idea of a decentralized exchange. Because what is an exchange other than a centralized marketplace connecting buyers and sellers? It’s the same thing as an Uber or an AirBnB. So anywhere you see this gap between the buyers and the sellers there’s somebody that emerges that tries to bring them together. But if we have these really robust decentralized networks that connects them peer-to-peer, you don’t need that entity. So crypto exchanges are ripe for disruption. And it’s great, because that facilitates the original idea of crypto – which is that you as an individual should be able to control your own money and your own data. Not leave it on the exchange, but when you want to exchange or when you want to trade you go to this decentralized marketplace and you find a ready buyer or a ready seller at the price that you guys agree upon and then you don’t need to keep your money on the exchange, you hold it in your wallet and trade it when you need to.

Chitra: It’s really fascinating when you look around and think that this kernel of an idea that Satoshi Nakamoto had – what it’s going to result in is the end of the middleman. So you look around at all these various economies, these micro economies, and you start to spot the middleman and you wonder – are they going to be around in a few years?

Micah: So in a few years, yes, I think. When you talk about truly revolutionary – and I use revolutionary in the true sense of the word in that it disrupts power systems – you look at revolutionary technology like crypto, revolutions don’t happen overnight. They take a long time. The Internet took a good 20 years to really establish itself – and we’re about 10 years into Bitcoin, so maybe we have another decade to go. But these things are fundamental shifts so you know what it really is doing is it’s just pointing itself right at the heart of how we have organized our societies – how we have organized people. We are so accustomed to and so used to having to go through some central trusted intermediary in order for us to exchange any type of value with each other that we don’t even think about it anymore we don’t question why a bank exists – we just presume that is has to. What this technology does is, it just unlocks that thinking in people and says ‘man what if we created a society where that wasn’t even required’. When you look at any city in the world – crypto makes you travel a lot. So I go to all these cities, whether it’s Shanghai or New York or San Francisco – wherever. You look at the top of all the buildings and you look at the big names on all the banners – it’s all banks. Everywhere you look, it’s all banks. They have created a system that really really works for them. But what crypto can do potentially is reshape that architecture, reshape that infrastructure and allow us to just connect directly over the existing giant decentralized structure we already created called the Internet – why do we need these guys. I don’t think we necessarily do.

Chitra: Coming back to where we are today, we are kind of in the middle of a bear market. You’ve been through a bunch of these. You often hear people saying ‘Oh this is a bubble, bitcoin is dead,’ you see all these dire predictions, but as someone who has been through this, how would you place us in the context of the evolution of the global crypto economy.

Micah: There’s a website – I can’t remember the name of it – it basically publishes every mainstream article that has declared bitcoin is dead for the past ten years. There’s probably hundreds of articles that have claimed ‘well that was it, bitcoin is dead, it had a nice run’ – and yet, bitcoin keeps ticking on. So I think if you’re going to really understand what this is, bitcoin is the ultimate multi headed hydra. You can cut off one head of it but it’s so resilient that it just grows right back, and there is no taking this thing down. So it’s going to be here to stay, the question is really not around whether it will go away or stay, the question is how big will it get and how fast will it get there, and that’s the really hard thing to predict. I’ve been through about 4 cycles of ups and downs and if you ride these waves you start to see familiar patterns. Basically it comes in these giant waves, the news picks up all the excitement, everyone’s talking about bitcoin, your Uber driver is talking about how he just bought bitcoin for the first time – and then all of a sudden there’s a panic sell and all the weak hands sell off and the price crashes and then it just flat lines for a little bit. And we’ve been in this really, really steady flatline for quite a while and we’ve seen these flatlines before. And then after all the weak hands are gone and everyone is relaxed, it starts to tick up again tick up again and tick up again and then it goes through the next cycle and the next wave. But every time it has done that, the next wave has been an order of magnitude greater than the previous one. So if you look at a historical price chart of bitcoin, the last wave and the wave before it, you won’t even see them register on the chart they are so small compared to the current wave, because they’re just an order of magnitude of the size. So I think we see this wave and we see this wave and eventually we’re going to saturate the market, but right now we’re at about 8% of Americans that own cryptocurrency, according to the Harris Poll we did, so I think there’s tremendous room for growth, I think we are just about to cross the chasm, and if this technology can cross the chasm, and go to the mainstream we are talking about something that is truly, truly, remarkably valuable.

Chitra: For people who are entering the market, do you have any tips or advice on how they should approach it philosophically or tactically?

Micah: Yeah – tread with caution I think – understand what you’re buying into. I think that’s true of all investments – if you’re looking at this as an investment, this is a new asset class and we don’t’ exactly know how it behaves. We have never seen it in a down market in the broader financial markets right? We have been in this long bull run since the financial collapse, and bitcoin has never actually experienced a down market – so we don’t know how it will correlate and behave. My advice is to, like all investments, understand what you are investing in. The best way to start that is to start reading about it, start consuming some content, get yourself familiar with it, understand what this thing is and why people think it’s valuable. I always recommend people read the white paper because it’s 8 or 9 pages.

Chitra: Do you have any closing thoughts on what we’re likely to see in the next year, next year to three years?

Micah: I think we’re hitting the inflection point, I think we’re really, really close to moving to mainstream adoption. I think the users that are going to come in during the next 1-3 years are going to look very, very different than the ones that are currently in the market. It’s not going to be just the technical enthusiast anymore, it’s going to be people who sit down at the Thanksgiving table with the technical enthusiast and learn about it for the first time. That’s everybody that we know, it’s our friends it’s our family, we’re all going to start becoming a part of this larger distributed economy together. This is all about building the new economy. If we just continue to build and we ignore the hype and we ignore the noise, then we will emerge.

Chitra: This has been a very informative and interesting discussion. Where can people learn more about you and more about the portfolio that Gem is building?

Micah: Well you can always follow me on Twitter, @Winkelspecht, and of course download the Gem app which is now available on the app stores. It’s a great way to learn about all the different cryptocurrencies, track your portfolio, connect to all the exchanges, and really just have a good time in crypto.

Chitra: Thanks so much for joining us, Micah.

Micah: Thank you, thanks Chitra.

Chitra: Micah Winkelspecht is the CEO and Founder of Gem, the Los Angeles based crypto portfolio company. Join me again next time for another edition of Running with Unicorns. Until then, enjoy your crypto journey, unicorns!

Running with Unicorns, a Crypto Podcast by Gem

Running with Unicorns is a crypto podcast and video interview series hosted by Chitra Ragavan, Chief Strategy Officer of Gem. A veteran former journalist with National Public Radio (NPR) and U.S. News & World Report (U.S. News), Chitra interviews crypto thought leaders, regulators, and experts to offer a lens into the rapidly evolving world of digital assets. Designed to appeal to both beginner and seasoned investors, Running with Unicorns is produced at Gem’s headquarters in Venice, California. Our mission is to offer unbiased and independent analysis of the news and events shaping the cryptocurrency movement, industry, and markets and to explore the role that digital currency will play in the future of money.