William Quigley of Tether (Part 2)

Welcome to the Puck, Venture Capital and Beyond, a show that explores the evolving landscape of the venture capital world. We'll have candid conversations with today's VCs and entrepreneurs who are shaping those changes. I'm Jim Behr, managing partner at Behr, Negron and Troff, and president of CMUG Advisors. This podcast brings change makers to the table to discover the inner workings behind the decision making strategies and ultimately to how they got to where they are today. Blockchain is like the great mediator.

Since it can't be copied, it's always correct. There's just many advantages of it. It's not as simple to understand as the Internet, which is why I think it's gonna take a little bit longer for most people to get it. We're back with William Quigley, cofounder of Tether and CEO of Magnetic Capital, to pick up our discussion on the future of cryptocurrency and the sci fi esque world of augmented reality. Can you tell me a little bit about Magnetic Capital?

Magnetic is a, holding company that has been involved in many, many different blockchain based businesses, probably over 40 at this point. So we did Bitcoin mining and other cryptocurrency mining in twenty ten, eleven, twelve, thirteen. We've also incubated many companies. We incubated WAX. We've incubated a company called StrongBlock.

We've acquired a lot of tokens. We were the the second largest buyer of the Ethereum crowd sale. You know, Ethereum is up, I don't know how many thousands of times since it you know, it was listed. It went out at about 30¢. That was the crowd sale price.

It's now at almost $1,800, and that's only in five years now. But five years from 30¢ to $1,800, that's a pretty good multiple. Wow. And part of the reason for Ethereum having gone up so much is because of what you can do on it. Ethereum, unlike Bitcoin, Ethereum has a smart contract built on top of the blockchain, which basically means you can program your tokens to do whatever you want.

It's a pretty cool idea. Imagine just having an emoji that you could program to do anything, whatever your imagination can conceive of. And that's why right now you're seeing, what we call decentralized finance just exploding on Ethereum. New lending platforms, new, insurance companies, new, derivative marketplaces. Almost anything you can do in the financial world, you can do or you soon won't be able to do on Ethereum, yet there's no middleman.

So the market, unlike in The US where you have a regulator that regulates, let's say, one particular thing, and if you're outside of that country or you don't have certain permissions, you can't even trade, let's say, commodities on the Chicago Mercantile Exchange. Blockchains are permissionless. Meaning, if you are a citizen of the world and you have access to an Internet connection, you can do what many countries and many groups don't want you to do. You know, there's a libertarian bent to blockchain. Wow.

And one is that people should be allowed to do what's in their self interest. And something I really like. I think democratizing finance so that we don't have guys who are making billions of dollars a year taking very, very low cost debt subsidized by the government and buying things because they have privileged licenses or the right education. One of the things that I've been most proud about in crypto over the last nine years is how many people I've made millionaires, single moms, retired people with very little savings, young people who maybe didn't have the right pedigree and probably weren't gonna get a job at Google. It's like nothing we've seen in the traditional world because there's no gatekeeper.

Yes. You can lose your money, but you can lose your money in the stock market too. And the community in crypto is powerful. If you want help, if you wanna understand something, there's thousands of channels in Telegram. There's thousands of channels on YouTube where you can literally listen to experts talk about this stuff for free.

It's amazing. You don't have to go get an MBA. You can literally just go online and get your feet wet. I don't really know many people who've been in crypto for more than, let's say, two years who have done anything but made money. If you get in and out in fifteen minutes, yes, you you probably got a high degree of chance of losing, which is why I always tell people, this has gotta be a five year thing.

If you can't afford for this to go down 80% over the next five years, then do not go into it. Because it could. Right. But there's a lot of people who put money in a four zero one k or some other retirement plan, and they're not gonna look at it for twenty years. So that's how you should look at this.

Long term, I think it's a very good bet. If I wanted to post something anonymously, like you said, the woman in Iran who wants to put something out there, how does that actually even happen? I know I can send an email. I know I can go to Twitter. If I wanted to right now just say, thank you William Quigley for this wonderful interview today, and I wanna put that in the blockchain, how would I do that?

Since the blockchains have been invented, you've been able to do that. I mean, you would have to go spend a little bit of time, but not much. Okay. You can basically write a message. And the very first message on the Bitcoin blockchain was an image of, I think it was the Financial Times, talking about the financial crisis, January 2009 or something.

I forget when. But it was sort of like a signal that this is why I'm doing this, Whoever Satoshi Nakamoto was or the group that was the people who built the Bitcoin blockchain, they wanted people to know what their motivation was. K. And so was the headline of the financial crisis, like, hurting The UK economy. And so you can put lots and lots of content, and then there's blockchains that are literally purpose built just for that.

There's blockchains where the whole point is to post content, and it's relatively easy. I would say it's probably not as easy as Twitter just yet, but it's getting easier. The EOS team launched something called Voice, which is pretty easy to use. There's another blockchain called Steam that is a content blockchain. You have to pay a little bit of tokens, and then that piece of content gets secured in that blockchain, and it can never be removed.

When you're talking about wealthy people using this as a, again, a means to store things and that everybody should have 1%, and then it also, from a perspective, is allowing the little person, so to speak, to be able to participate in this global economy. We hear a lot about wealth inequality. We hear a lot about uneven tax policies. We hear a lot about if you're taxing a billionaire too much, he goes from one state to another or one country to another. But Kennedy's book, Capitalism in the twenty first Century, talks about one of the challenges being that if you tax a French billionaire, he'll just move to England or vice versa.

One of my questions for you is in terms of where the world is going as the oracle of cryptocurrencies in five or ten years, William, is there gonna be a way where there can be a world tax or world financial system where there is rules that apply to everybody? Does this cryptocurrency and the blockchain fit into that at all? I don't think so. And I just say because to me, that's not a technical problem. That's just a policy problem.

I mean, if all governments in the UN said, all cross border transactions have this fee and that money is collected by somebody and distributed by somebody, seems like an awful lot of work and very hard to do. But it could be done, but then the technology would be trivial to do it. Right? You just have to have enforcement arms. The one maybe advantage of a blockchain is since it can't be edited, you can update it, but you can never remove prior records.

An uneditable database is a good start if you're trying to have a lot of comfort from an audit standpoint that the records have been properly maintained. There is no better way to store records if you wanna make sure that they're not changed than a blockchain because you can't modify them. That's pretty cool. And I think a lot of big companies will wind up putting stuff on blockchains for that very reason because they can ascertain instantly if something has been changed. As far as I don't like the word inequality because I feel like that word is, it sort of conveys a sense that somebody did something bad, you know, or there's a moral aspect to it when I believe it's just a systemic issue.

I prefer, like, income variation. Frankly, I find when I say variation, it invites people to say, oh, let's examine why there's variation. Whereas, you hear inequality and you think, oh, it was bad. Let's fix it. Well, let's first figure out what happened.

But if you were gonna try to evade taxes, the blockchain is the worst possible way to do it. Because as I said, it's an uneditable database. So there will be a record forever showing that you did something. You also said that it was anonymous. So if I wanna pay somebody and wink wink, we wanna do things and we wanna do it anonymously, can I pay you a 100,000?

So what you can do is let's say you mined a Bitcoin. You can mine it and no one would ever know because you talked to a machine and the machine gave you a Bitcoin, and it went to your account. And no one would know that that XY1234 account number is yours. But the minute you move that, alright, well, now I moved it to you. You must know me for me to have given it to you.

Right. I mean, this is the reason terrorists have a very difficult time paying for things using anything but like shells. It's not hard. There's a group called chain analysis. And as soon as you send that thing to another party, you've doubled the number of people who now know that thing belongs to you.

So you could say, yeah, but I could hide all my money in a Bitcoin in an anonymous address. That's equivalent to kinda having a bunch of money and burying it in your backyard. I agree. Once it's buried in your backyard and you're the only one who knows you buried it there, it's fine. But when you wanna buy that Tesla, I guess you could find a body double to go buy it.

But you see, it gets very complicated. As soon as you start to transact in the crypto, I think anonymity is almost impossible. So in other words, when I transact business through my bank or otherwise, there's my name involved, they've got my social security number involved, there's bank reporting requirements where if I move more than 10,000, they know that. You send people $10.90 nines. There's all these systems in place to try to verify stuff.

But if I, for instance, say, William, here's a $100,000 for being a guest on my show, and I send it to you from a wallet that I have, and you get it in your wallet, and for sake of argument, now you've been paid a $100,000 for me. How the heck is the IRS ever gonna know about that? Very simple. The IRS audits me and says, oh, I see, you know, you got paid a $100,000 with crypto. Can you show us the address that it was deposited in?

Yeah. My address. Where did it come from? It came from this address. Do I have to report to the IRS that I paid you on it?

I didn't. Any transactions you're doing. We have to report. The carrying value of that Bitcoin you had was a price. Maybe you bought it for 50,000.

Now you sent it to me for a 100,000. Well, now you have a $50,000 either long term or short term gain. So can you operate almost like in a prison system where you're sending packs of cigarettes back and forth? You can, but to me, it's silly for us to get too caught up in that because it's so small. In the real economy, will there always be that point zero zero one percent in the dark markets?

Yeah. But that happens in the cash market now. Right. There's massively more illicit untraced transactions going on with cash than there are with Bitcoin. Right.

The problem is it's just a closed ledger. So what if I get this Bitcoin and I send it to somebody and they get asked by somebody where did it come from and then those people come back to me and say where did you get it, which happens a lot, and then I say I got it from this person. And if you wanna sell it, how do you sell it? You sell it on an exchange, so you have to register on that exchange, your name, rank, serial number, all the KYC information. It's really hard to stay unaware and anonymous if you actually wanna use it.

If you don't wanna use it, you just wanna bury it in the ground or whatever, then, yeah, you can probably hide it, but I don't know what the point of that would be. Your cigarette analogy is a good one. If you have a closed system where everybody's cheating together, they can cheat with cigarettes, they can cheat with cash, they can cheat with Bitcoin. The only thing I would say is if you're cheating with cash, you actually have to carry bags of money. Right.

Whereas, if you're cheating with Bitcoin, it's digital. You can move infinites amount of it with the keystroke. Whereas, even with cigarettes, you gotta have a truck to haul them. And most of the time, you're gonna keep it in a digital wallet. And if it's a custodial wallet, well, the custodian has asked you for all the information.

The vast majority of crypto is reported properly and is not being done for any illicit purpose. I'm sure there are some bad guys doing things for illicit purposes, but like I said, that's being done with cash as well and it's not a reason to eliminate it. I've thought about this problem for ten years. I have many ideas that governments could implement, regulators could implement to effectively end almost any illicit activity. I don't wanna say those things because I prefer they not do it because then I think they're gonna make other burdens on legitimate people, but it's not hard.

So, William, I know WAX is working with NFTs. Can you tell me a little bit more about NFTs? Yeah. So NFTs, non fungible tokens, I talked about them briefly before. They are, tokens unlike Bitcoin where every Bitcoin is the same or every Ethereum, every ETH is the same, with NFTs, each one is unique.

That creates an opportunity to create collectible digital items. And this space has really exploded in the last twelve months. The very first NFTs came around in the late twenty seventeen time period, and people were basically putting a image of something, could be a cat, could be a video game item on an NFT token, and trading it back and forth. Now go forward, like, four years. We have pieces of digital art, unique pieces of digital art, selling for hundreds of thousands of dollars over a million dollars.

We have big companies, like I mentioned one, TOPS, the baseball card trading company, that's moving a bunch of its properties onto blockchain where you not only can buy it from them, but then you can trade it in a secondary market. And it's the trading in the secondary market that's really been a fantastic point about blockchain because sports memorabilia, there's a lot of that on eBay. I assume majority of it is counterfeit, but there's no way to figure that out. Also, it takes a a couple of weeks from the time you buy it to get it shipped to you. You look at it.

You put it up on your wall, maybe, autographed, jersey from some baseball player, or you sell it. But every time you touch it, you sort of create an issue with the provenance of it because now, well, did that guy swap it out for a fake one? Who knows? When it's digital and it's tokenized on a blockchain, it can never be duplicated. Therefore, your ability to know, for instance, how many of these rare items have been made.

Some artist says I've made 10 lithographs of this image. Well, maybe he's made 10,000. You just don't know in the physical world. When it's on a blockchain, you can see how many have been made. And it's so easy to sell these in the secondary market.

By the way, Google and Apple, their app stores, which are giant, prohibit secondary market trading. Think about this. The video game industry globally generates about a 160,000,000,000 every year in revenue, pretty big industry and growing fast. About a 100,000,000,000 of that 160,000,000,000 is little virtual items that people buy in the game. They pay a lot.

My company, OBSKINS, some people would pay $20,000 for a virtual item. But Apple and Google don't allow you to trade that. You keep it. You bought this thing. What they claim in the terms of services, it's just a license for entertainment.

Now imagine you're buying in a video game a virtual item that you can trade on one of thousands of marketplaces, and you can instantly convert that thing into tetherized euros or yen or RMB or dollars, and you can do it very cheaply. I look at the $100,000,000,000 video game virtual item industry today and growing fast, and I think that is up for the grabs when it comes to blockchain. So a lot of that is gonna move to blockchain. Think of NFTs as basically a new entertainment medium. You've got music, you've got video games, you've got movies.

NFTs will be bigger than all of those combined. I don't know how long it'll take, five, ten years, but I think there'll be hundreds of billions of dollars worth of NFTs that are out there. In fact, I would even argue that the art market really needs to start paying attention to this because the millennials and that generation before them or after them, I should say, I don't think they're gonna be that interested in, parchment and water colors and physical pieces of art. I know myself, I love digital art. I love the fact that it is easy to display and also tradable.

I don't need to go through some gallery network where they take 40% tariff when I sell it. I can sell it instantly on many, many different marketplaces. Fashion. So, my partner, Megan, she is focused on NFTs in the fashion world. Once augmented reality becomes reality, and then that will probably begin to happen when Apple comes out with its virtual reality glasses, that's either 2023 or 2024, I believe the number of virtual objects that people will want to have and then that they can trade will explode.

People will have virtual reality augmented reality clothing. This is fascinating. I can't believe you just connected these dots. This is where you are so far ahead of the rest of the world. Just like with gamers, you taught me about skins.

There are these people that go out and they play games, and they have guns, and they buy unique skins to go over their guns. Okay. I get it. You're taking it to a ridiculous new level. I'm going to a Laker game, and I'm going to a virtual Laker game, and I'm gonna have a floor seat.

But guess what? I'm gonna have a virtual hat, and no one else in the whole world's gonna have that. Yeah. This is unbelievable. It's almost like mass market couture.

You literally can have unique sneakers no one else can have. And the sneakers, by the way, because it's all software, they can be programmed to play music whenever there's a, you know, your team scores. NFTs will be location aware. They will change form. You know, when you're in Disneyland, they may unveil some secret to you on that day.

Like I said, it's a brand new entertainment medium. There will be a lot going on. Now I believe augmented reality is a far more interesting area than virtual reality in the near term. You know, it'll be a digital overlay, and those digital objects will have value, and they'll be traded. I remember when my grandparents could not learn how to use an answering machine.

And now I have an iPhone, and I can do a bunch of stuff, but my kids can do it 20 times faster than I can. I grew up in a world with trading cards. What you're basically telling us is the world has changed, and one of the big new things that's coming is a whole world of these virtual goods. And the sky's the limit because of imagination. Right?

I could be wrong. I mean, this 2023, 2024, I'm gonna assume Apple is going to hit the mark with augmented reality glasses, which is just a digital overlay of the real world with digital items. All kinds of fantastic things that will make our lives better if we have a digital overlay of a real world. One of those things will be seeing unique pieces of art or unique pieces of clothing. Anything that you can imagine, those things will be tradable, and they will have a value assigned to them.

I see the NFT market. It's getting bigger, but it's gonna explode when that happens. You're telling me my virtual background when I'm on my phone or I'm talking to you or whatever. I could have my modern day Picasso digital. Yep.

I could have my feet up on a desk with these very cool tennis shoes that no one else in the world has. Yep. I can have my digital watch that no one else has. I can create my avatar in the most creative way possible, and that is coming. It's so coming, it's not even a question.

In twenty eleven, twelve, thirteen, my partner and I were like, wait until we have augmented reality. I thought maybe in five years, but it turns out it's more like ten years to fifteen years. But it's gonna happen. As soon as you're in a digital world, the value of things is digital. You'll pay with digital currencies, obviously, tokenized currencies, and these objects, You already see it among, like, the groups I hang out with.

I go to their houses and they'll have on a wall, they'll have a giant screen. And on that screen will be a $50,000 NFT piece of art. When you talk about augmented reality layering it over, I can conceptualize it in the way of my virtual background on my Zoom call. I also can just understand the way you just said when I walked into your friend's house and he's got a big television screen and he's got art there. So what does an augmented reality look like?

So you got these glasses on. Right? Okay. So, I'll make really mundane things. Right?

Here's the mundane examples. You go to a, some venue, and there's hundreds of people out there, and you know your friends are there, right? You just click a button or whatever, voice command, and the filter comes on. And that will now point an arrow, and it'll just say, this is Mike. This is Joe.

This is Eric. Oh, my god. And also, when you're sitting down, this is what's gonna make it kind of creepy. But also, I love it. You know, when you play the six degrees of Kevin Bacon game?

You're just gonna be sitting around, and you'll put a filter called friend to friends. And you'll be at a restaurant, and then it'll be, this guy knows William. It'll go into their LinkedIn and it'll say, oh, I see. He worked at Clearstone with William in 2007, 2008. You know, maybe you've had three email conversations with that guy.

I also like the idea of call it digital graffiti. You're walking downtown Santa Monica and I just posted, you know, a little note in front of that restaurant saying, hey, friends, the best dish here is the burrito. You'll see graffiti there that's laid over from somebody who put it there. Obviously, when you get into industrial applications, it really blows your mind. I mean, imagine if you're a tinkerer at home and you're trying to find the conduit with the wire that's behind sheetrock and you just click a button and now you see a schematic of your wall.

So for any kind of mechanic, repair person, whatever, they'll just be breaking these things down digitally. It's mundane, but really useful. What I foresee is there came a point, it was like 2005 maybe or 2008, somewhere around there. I remember being in the office, Our email server went down and all the younger people were like, gotta go home. The company is down.

And for any of us who grew up without computers, we're like, well, there's other ways to be productive. I foresee, and maybe it's the people who are little kids now, In twenty years, the quote, you know, augmented reality system goes down and they're just like, well, how do we even survive? How do we go outside? How will we know what to do? In the same way with my iPhone, Find My Friends, you have to opt in.

I mean, you have to have the person's phone on. So it's an opt in system. Yeah. And we know how businesses work. They really try to get you to look at Google.

Right? You use a different IP address, a different computer, a different email address, and you log in and it says, are you this guy? And you're like, how did it know? I suspect there will be that. I mean, like anything, there's trade offs to technology.

Simple stuff. You're driving down the road and there's a road hazard. The sensors on the road just noticed it. A big sign comes up in the road, digital sign, slow or detour here, follow this electronic detour. I believe, because I can think about what an augmented digital overlay of the real world would be like, I would never want it off.

My partner, Megan, her worldview is that, everyone will basically put on like a black or a green catsuit in the morning. And then you just will digitally overlay your cool threads. Yeah, I think that will definitely be the reality. And what you're basically saying is that you'll have augmented contact lenses or implants, and those nerdy people that are not the cool people, they'll see you in your cat suit for a while because they're not wearing the digital contacts or implant or glasses, and they'll see a CAT suit. But everybody else that's cool that you want to see your digital outfit will be able to see your digital outfit.

Yeah. And I'm sure there are people out there who will hear this and think that sounds like a dystopian nightmare. For some, it might be. It'll be 10 g, not five g. It will be microprocessors that maybe are using some sort of quantum mechanics, very, very, very fast processing.

Because, you know, you can imagine if you have a digital overlay of the real world, that's a lot of heavy processing. So a lot of this is gonna take infrastructure and whatnot. Of course, everybody will have to have some sort of augmented vision probably through glasses, but in the distant future, maybe contact lenses. Why wouldn't you want it? It's just like today.

Well, you could live today with no digital interaction, no email, no Internet, no phone, anything. You could, but I think it would be an impoverished life. I think where we're headed is instead of these clunky physical devices that we have, we will just have digital overlays. Devices that we have, we will just have digital overlays that are much more ubiquitous and are easier to do. Of course, from an environmental standpoint, imagine that.

The fashion industry is one of the most polluting industries on Earth. Now imagine there's really no pollution from fashion. You're not really disposing of clothes. They just exist digitally in a digital closet that you don't wear anymore. It really is a great promise for the future.

And when you get eight k, when you have speeds and pixel density that's multiples of where we are, again, that requires a lot of bandwidth and a lot of processing, but it's gonna make it so real, like holographic type of structures. We're going to get there faster than many people think. 2,030 augmented reality will be a reality in many settings. I've always liked the idea of going to in a big group setting and think, wow, what if I could have Wikipedia like knowledge and know everyone's backstory, and I could start to figure out who should I be talking to, who should I be introducing to, who that is gonna be your reality for sure. I get it.

William, this has been, as always, fun and a pleasure getting to see you and hearing you. So thank you.