RAOUL PAL: Bill, it's been a while, but we got you on Real Vision eventually. How are you?
BILL BARHYDT: I'm great, thrilled to be here. Thanks for having me.
RAOUL PAL: Listen, you've been in this space for a long time and you're new to many people, but not to others. Let's go back and just go through a bit of your journey, how the hell you got here? When did you start your career?
BILL BARHYDT: This is a circular path of-- I worked in cryptography when crypto meant cryptography not cryptocurrencies. I worked on Wall Street. I was at Goldman. I went through a phase of learning all about financial markets, fixed income, build trading systems, designed portfolio management systems. Then I got the internet bug and ended up joining Netscape pretty early around the time of the IPO. That's more or less been my 20-year journey now is just really focused on the internet eating the world mantra that I've always had in my mind.
The things that have always resonated for me is how the internet can basically act as a great leveler and democratize access to anything, whether it's entertainment and media, or now financial services, which has been my big passion for the last 10 years. I had a whole bunch of investments and startups in that area around payments, remittances, investing, now culminating with Abra, of course.
RAOUL PAL: Talk to me about your crypto journey. You started with cryptography, you're learning finance, so you're obviously going to meet this space at some point. Where did you meet them, and how?
BILL BARHYDT: Now, keep in mind. When I was a cryptographer at the CIA, I didn't know anything about banking. It wasn't even really interesting to me. Of course, I made no money, so it didn't really matter anyway. I think one of my sons who worked at a movie theater makes more money per hour than I made working for the CIA as a cryptographer. The idea of dealing with money was so foreign to me, it didn't even factor in anything.
That obviously changed later, getting to banking, and then exits and startups, whatever, but it was a long route. I first started getting into banking when somebody recruited me back to my NASA days from Goldman, because they connected the dots on my math background and said, this would be amazing for you if you just dug in a little and they pushed me, and I did. That was a really long journey.
Then the second part was payments. At Netscape, we built the first credit card gateway for the internet to actually formally accept an encrypted payments, and then ended up building like a whole key management business in Europe for Netscape for PTTs or telecoms that wanted to basically figure out a key management strategy, not dissimilar to the discussions we have today about not your keys, not your crypto thing.
Then that's basically led me down the rabbit hole of payments and banking, spent a lot of time in developing markets learning about how regulation and governments, especially in the middle of this whole Choke Point thing. I don't know if your viewers are familiar with what happened with this Project Choke Point that the US government was basically executing to block services like in the remittance world and arm sales that they didn't like. Totally legal services, but they basically cut off their access to bank accounts, and we're still dealing with the [?] of that.
In the meantime, I'm trying to build banking services in developing markets for the bottom of the pyramid and hitting all kinds of roadblocks that are just nonsense for people trying to store $25 in an account. That led me, this is maybe a year after I'd read the Bitcoin whitepaper to say, okay, I'm tired of this, there has to be a better way. At that point, I've already personally started going down the Bitcoin rabbit hole. I had done a TED talk.
RAOUL PAL: What year was this?
BILL BARHYDT: 2012, it was when I did a TED talk at the main tech conference in early 2012 I think it was, so about nine years ago. Nobody knew it or even heard of it. Silk Road was booming at that point, Bitcoin was that about $2, maybe $250. You could still mine on a good personal computer at that point. It was just a totally different time.
My interest was more about banking than store value at the time because I said, hey, this solves a lot of problems. Especially with all the middlemen problems I was dealing with in the remittance world, in the banking world, and that really pushed me towards this model. Of course, later on, my interest evolved dramatically as we get now into defi and store of value, Bitcoin as digital gold, what's happening with, like I said, Ethereum to [?] and this whole shift to moving every aspect of financial services into some type of Ethereum-based smart contract is just incredibly interesting to me.
It's been a long journey of basically taking everything I know. I feel like it's the first job I'm qualified for. Because after all these years, I have all these things that I understand around internet and marketing and banking and consumer internet and cryptography and now, all of a sudden, I get to use it all in one job. It's like a dream. I actually can't believe I get to do this most days, to be honest with you, and not every day, but most days. That's the long circular route that it took me to get into crypto, cryptocurrencies and why it's so interesting to me. Our mission at Abra is particularly around the democratization of access.
RAOUL PAL: Why don't you talk to me about Abra? How did you set it up, so you go from, this is interesting. I'm interested in payments. What made you then?
BILL BARHYDT: I wanted to build a crypto based banking service. At the time, it wasn't crypto, it was Bitcoin. I wanted to build a Bitcoin based banking service where Bitcoin would be the core, so that I could in theory, eliminate middlemen. You could have the option of storing your own keys, you could send money person to person, you could invest in other assets.
Today, we call those things like synthetics. I had this like big vision idea of building a banking application with Bitcoin as its core. Now, that's evolved significantly since then, where I would say Abra is one of the leading like global retail crypto banking apps. But the original vision was very, very simple. I wanted a single app that would work anywhere in the world, where anybody could access a single app to send money, store dollars, store Bitcoin, send Bitcoin, send dollars, eventually invest in any kind of asset and using Bitcoin.
I've had this long-held belief that Bitcoin is going to become a core component to collateralizing different asset classes over time. That was one of the original tenets for Abra, which we don't talk about much, because it's obviously from a retail perspective very complex. In the background, it's always been a core technology component of what we do.
Today, it's evolved. Literally, it's in trading and investing in over 100 cryptos, earning interest on your dollars, stablecoins, as well as crypto, borrowing against your crypto balance, really moving in the direction of being that full bank for cryptocurrency. Ironically, now, even though we have lots of people with six and seven figure deposits in Abra, we also have people in the bottom of the pyramid countries putting $4 or $5, $6 in Abra in a single app.
I say ironically, because it was really the developing markets that pushed me to do this in the first place. In the meantime, we've got every single aspect of the income pyramid or component of the income pyramid using this one single app. I don't know if there's any other app in the world, banking, or otherwise, maybe WhatsApp that has that gamut of income and user profiles that we do now.
RAOUL PAL: So, your vision really in the end is to bring a bank into that for everybody? Anybody who has a phone have a bank?
BILL BARHYDT: Yes, that's right. I think crypto is the future of banking. At this point, I just don't see a scenario where that's not true. I really don't see how cryptocurrencies aren't at the center of banking in the future. Right now, it's on the edge but I think it's moving towards the center, and it will take over.
RAOUL PAL: When you go back and speak to your old mates at Goldman, as we all do, do they get it now, and how do they see that?
BILL BARHYDT: Yeah, they get the digital gold store of value story for sure. Partially, because you can't argue with a trillion-dollar market cap and nobody thinks Bitcoin is going to zero now, I think there's myriad discussions around where does it really fit in? Is it the Fed? Is it going to be better technology? But nobody thinks that's going away. As a matter of fact, I did have dinner with a colleague who's on the managing committee, and we had this exact same discussion.
Then the second part of the discussion was where is defi going? What does defi mean? Is it really going to work? Can it scale? That's probably similar to discussions I was having five years ago about Bitcoin. Will Bitcoin even work? That was the narrative five years ago? Does this work? Is it just for drugs? Is it just for the dark web?
Now, we're having analogous discussions about defi. Will it scale? Is it legal? What happens when these contracts are hacked, etc., etc.? All the questions, all are valid questions, but we haven't evolved yet to the equivalent narrative for Bitcoin, but I think it's going to happen even faster with defi and all these decentralized apps that are going to come down the pipe, whether they're on Ethereum or Cardano, faster than what happened with Bitcoin.
RAOUL PAL: When I look at this space and you look at the rapid space of innovation going on at defi, and then you see that the central banks have figured this out, and then now having to bring out the central bank digital currencies, I don't see what role there is for the average money central bank in Middle America or Middle Europe.
BILL BARHYDT: It's tough. I think banks have a big problem. When the bond markets are not looking good, there's a hunt for yield and you're certainly not going to find it at your community bank. Their value proposition, their value add is-- look at it in the context of the internet itself. The only reason why you couldn't basically allow the internet to eat banking from the inside out like it did with every other industries is regulation. The fact that governments print the money, and they also decide who gets to distribute the money via the banks. If that changes, there's no reason for them to exist, at least not in the form that they do. That's a real problem if you're in banking.
For everyone, I don't think anyone else is going to care because I think over a 25-year period, what's going to happen is that banks will become crypto centric, and it'll just seem logical by the time it's done. It'll be like who talked about Kodak now, or who talks about Blockbluster. They were a central part of our lives 25 years ago, and it's just logical that they don't exist anymore now. I think that's what's going to happen to traditional banks. I just don't see the value proposition going forward.
RAOUL PAL: If the moat was regulation, then what is happening there? Because this is the big problem with defi, it's still nobody knows where regulation falls on this. How do you think it's going to play? Because there's centralized defi and then there's truly decentralized defi, which is almost impossible to control. I think the regulators are so far behind.
BILL BARHYDT: Sorely. Think about it. The definition of a decentralized system, at least to me, is there's no off switch. Once there's no off switch, and the two best examples of that that I know of are BitTorrent, which was probably the first, besides the internet itself, but BitTorrent and the second being Bitcoin. You can't shut off either. I would posit there's no way to shut off either of those services today. I think Ethereum is close. I think it can get there, but not quite yet, but I think it's moving in that direction. Even with proof of stake and a lot of people are like oh, it's not decentralized.
These defi services aren't quite D yet. Shut off Amazon Web Services, and you'll see what I mean. I think in three or four years, there will be no more off switch. At that point, to your question, what role does a regulator play if you can't shut something off anyway? Because there's nobody to go to and say you're doing it wrong, you're not following the rules, shut it off.
The analogy I liked with BitTorrent was they couldn't shut BitTorrent off, so the music industry started going after individual named users based upon IP addresses with these RIA lawsuits. They realized what a great idea that was after a few months and stopped doing it, after everybody started hating the music industry. I just don't see regulators starting to sue or go after individual users of the services and at that point, there's nothing they can do.
RAOUL PAL: The only point of fragility that-- I keep trying to think through the fragilities as we get to that end state. The only point of fragility is your ability to interact with the existing banking system.
BILL BARHYDT: That's right hundred percent.
RAOUL PAL: You want to bring money back into the US because you want to buy a house, a car, pay your taxes or whatever, they still own that. That can make it very awkward still, they can just say, you've come out of these protocols or wherever it is, you can't bring it back again.
BILL BARHYDT: That's what they're doing. If you look at what's happening in India, the discussions in Nigeria, it's about the on-ramps and off-ramps. Even China doesn't say, hey, we're not going to allow you to store ones and zeros in your pocket, which is like saying, banning Bitcoin. They're going to say, we're going to basically regulate the on-ramps and off-ramps and prevent you from transacting, and we're going to prevent third parties from acting as trusted third parties that hold your crypto. That's the best they can do.
It's going to be those on-ramps and off-ramps that are basically going to be the Choke Point for a lot of this innovation going forward. Some will get it and become centers of innovation. Some will put roadblocks in the way like I think India has 180 degrees the opposite perspective on this. They could become a mecca of innovation for banking and crypto if they would just do a 180 on their ridiculous perspective on continually banning crypto and then having the Supreme Court overturn what they're doing.
Why somebody doesn't get held in contempt for trying to do the same thing over and over again, I don't know but put that aside, I really do think they have it completely wrong.
RAOUL PAL: Because India has actually digitized pretty rapidly. They've built this layer on, the open API to their UPI payment system and the India Stack, they have something really powerful.
BILL BARHYDT: Right. I look at it like how do we leapfrog the West? Go look at the train systems in countries that leapfrogged us, because they built their trains in the 1990s. Well, what about banking? Why isn't Indonesia or India basically say, let's move our economy to this model over 20 years? If they came out and said that, I think people would move there to work on this. As opposed to the opposite, which is people leaving to go work, less in the pandemic, but euphemistically speaking, moving to work on these projects that are based in other countries and I think this a huge opportunity to reverse that trend.
RAOUL PAL: What about the trend that came out-- Mnuchin's last famous thing of trying to push through the regulation of KYC on wallets and holdings? How do you think that plays out?
BILL BARHYDT: That is very misguided. My understanding is even a lot of people like FinCEN, which is the regulatory body within Treasury that deals with that, probably considered that misguided based upon the hearsay from my network. I think it was a feeble last-minute attempt in the last administration to exert control over something that is basically uncontrollable.
Look, the Supreme Court has opined on software and software as well as free speech. I think the way we think about CIP, Customer Identification Process, in banking as it relates to the Bank Secrecy Act is completely out of whack. Nobody challenges it because nobody wants to be the one that-- everybody is afraid to take this to court. I just don't see how the extreme that we do in banking is actually illegal in this country, but everybody's afraid to fight it. I'm not going to spend our investors' money fighting it, and I'm just going to follow the rules, because I don't know what else to do.
Then our customers accept it because they have to do it with every other service they use. I think that there's going to be more attempts at this. I do worry a little bit about the new administration, but I think ultimately, they're going to lose. You see it with Miami. You've heard about the mayor of Miami, you've seen in what's happening in Wyoming, little bit in Texas, there are pockets of people that get it. Eventually, it's going to spread. When I say it's going to spread, this understanding that you can't stop it, that we should embrace it, and then it has value is going to spread like wildfire.
RAOUL PAL: Yeah, I totally agree. Switching gears a bit, your app has been running for, how long now? It's quite a long time.
BILL BARHYDT: Well, the current version is about two years old, but we had an earlier version with which was noncustodial. Now, we have the traditional custodial version, which is about two years old.
RAOUL PAL: When you've onboarded new customers and your existing customers, what change in behavior have you seen? In the last two years, we've had yields. Yields are fundamental, these always been, what have you seen? What are people doing?
BILL BARHYDT: It's a great question. A couple of huge changes we've seen, even over the last six months I would say. The first is this the amount of crypto deposits that we get off of exchanges on to Abra has gone from being 15% of our business 15 months ago to being 60% to 70% of our business today. Meaning I bought Bitcoin maybe at Coinbase or Kraken, and it's just sitting there. I want to earn yield on it. I want to potentially borrow against it in the future.
I hear Abra is a great way to do that. I'm checking out Abra. I looked at it, I was like, wow, this app is amazing. I didn't know you could do all this with