From Blockchain to Banking with Brad Garlinghouse (Ripple) and Michael Arrington (Arrington XRP Capital, founder, TechCrunch) | Disrupt SF (Day 1)
11:31PM Sep 5, 2018
Few years ago, actually more than that, this idea of cryptocurrency came onto the scene and I just buried my head in the sand, hoping that it would go away, so I wouldn't have to learn about it. Other folks really leaned in one of those is the founder of TechCrunch. Michael Arrington, and we are going to bring him up onto the stage. He is also the founder of Arrington XRP capital as well as Brad Garlinghouse with ripple So please welcome them to the stage as well as your moderator, Mike butcher. Big round of applause.
Thanks for joining us, everyone.
Well, French branded water now we have
TechCrunch branded water. You have a long way
since you're years,
yes, yes, quite a lot has changed ship has changed since there's even there's even coffee backstage. It's incredible.
Let's start we're going to sort of set up the conversation a little bit, you know, when Satoshi. Now, Komodo invented Bitcoin, during the last recession, he she or they who knows who they were, imagine a completely decentralized world with the Bitcoin blockchain, but it required constant mining, obviously, to unearth its cryptocurrency now ripple represented here by CEO Brad is a real time gross settlement system, currency exchange and remittance network created by Ripple Labs, which is a FinTech company. Now, it's built on a consensus ledger and the cryptocurrency known as XRP. So hello,
now when ripple decided to pre mine, it's XRP currency pre minded. Okay. So it's already on mind and then instituted handler of centralized nodes. To create a highly scalable network in FinTech is really need scalability. However here's what happened all health broke loose because crypto libertarians who believe in decentralization effectively Did you know that thought this is ridiculous. ridiculous idea. Then Along comes Mr. Arrington fresh from having leaving venture capital fund crunchfund launched his own crypto fund Arrington XRP so names because the fund is built on XRP using ripple that sorry, using XRP and using ripple to transfer money globally at speed between LPs companies funding funding etc. But the critical apparently libertarians to this day rail against ripple and XRP and anyone who will deal with them, including Arrington XRP, so Brad some of these libertarians they some of them actually literally called you the devil,
I know I'm not the devil, can you prove it?
Like I think it's interesting place to start in part because I think there are a lot of religious zealots in the crypto space. And I think people believe things in a way that you would kind of describe as religious zealotry, your ripple took a contrarian view pretty early in our evolution and said, Look, if you want to really revolutionize the way payments work, if you really want to revolutionize the way transactions work in this regard, it's not gonna happen by everybody giving up their existing infrastructure and just switching to something new as much as I am actually a bowl on Bitcoin. The Bitcoin blockchain is not trying to be one ledger to rule them. All ripple invented, I said a series of technologies built upon the XRP ledger that allows institutions banks, and even in some cases, governments to take advantage of these technologies and dramatically accelerate the nature of transactions fully into talking points. But I'm trying to explain the thing I'm getting to is simple. The idea that the people who say that ripple is somehow that your word the devil, it's because we were partnering with the man we decided, if you want to enable an internet of value, got to connect the repositories of value and their positives of value of the banks. Why couldn't the banks have
went for a more fully centralized network, they
Well, it to some degree, that's what they use today. I mean, cross border payments today, which are slow and expensive,
so I fully decentralized them and say,
we XRP ledger is fully decentralized ripple, the company cannot control the XRP ledger apart from the fact that you control a handful of nodes,
we control a handful of nodes, but I mean, we control I think, seven on 7% of all of the public nodes on the XRP ledger. So I mean, contrast you have miners in China that control you know, north of three miners control north of 50% of the Bitcoin blockchain by any measure the Bitcoin blockchain is more centralized than the XRP ledger. What he what he Jesus pick XRP is feel fund.
Well, first of all, class something. So ahead.
I'm sorry, I'm just used to being
I was already there gonna be to interviewers. And why are you
Well, no, I just you could roll back transactions right on your ledger could have nodes. So
this is one of the fun to kind of misinformation, things that people say, like ripple can block a transaction? Not true. Can we roll back a transaction? Not?
Could you just wouldn't ever do that? We actually
can't Oh, I
thought you could know. Oh, I was hoping you could. Alright, so
I chose I says that
night. Is that going to affect your head? I
was under the impression that we could know i. So there's the there's the there's two answers both partially true as to why I went with XRP. The first answer that's partially true is when I decided to do a crypto Fund, which was last year after I made a couple of investments on my own. And through crunch funds. I naturally went to Brad because we become very good friends. So not everybody knows this. But crunch was originally sold to AOL, and eventually became part of the Verizon behemoth because of Brad because he was at AOL wouldn't have happened without him. He was the primary person that made that deal happen naturally, I'm his friend. He made me wealthy, not as wealthy as him, but wealthy. And so and I also liked him as a human being. So I went to him that he was Yes, and that are. So when I went to him. He was the CEO of ripple. And so I would talk to him about the fund and true story. When Brad first joined ripple I told him it was the dumbest career move he'd ever made in a in a long string of bad career moves. And it turns out now he's the fifth richest person in California or something. But I went to him for advice. And and he helped you know, he helped me raise the fund other ripple isn't an LP, he helped me by introducing me to most of our large LPs that hold large amounts of XRP. The other answer, which is also true is XRP is a fantastic currency to use for, among other things, funds, we need to move a lot of money very quickly, we make investments all over the world, our LPs come from all over the world. And using banks to move money is a pain in the ass. I mean, it takes a day or two to move money around the world. And with XRP, our very first close was 50 million, we move that money in and I'm not shooting you in like three seconds. And I think it costs 20 or 30 cents. That's that you really need to think about that. But that's so fantastic to
use that you'll meeting it using the ripple protocol. But the problem is, is that here's the XRP ledger to do that. He's he's okay. He's using you're using XRP ledger. But there's an issue. I didn't know anything. Somebody else did it. But I just feel that the money moved in like that, like literally like that. And it was it costs nothing. And have you ever sent money in an international wire? I mean, it's a pain in the end, and you gotta call Did you get it? And what? No, I didn't get it. It's, it's truly Well, I mean, you can use you know, there's lots of startups transfer wise, etc. That will do that kind of thing. But obviously, there are charges and obviously larger amounts that you can't cater interjected
dollars. I think
transparency is a fabulous company. And they've done some very clever things by hacking the existing system. What transfer wise does is optimize the existing infrastructure and effect hack the system so they have a better outcome? What ripple strategy and say, Look, can we reset the rail transfer wise loves what we're doing, because if we're successful, it makes their job actually easier. Oh, there's a lot of companies that spend a lot of time and energy transfers and currency cloud or examples that are taking existing system and saying, How can I put accounts all over the place, and I'm gonna have my own effectively ledger within transfer eyes to debit and credit so I can make funds available more quickly than I otherwise would be the case. So one of the one of the issues, let's be honest, is that you come up with a fantastic ability to move money around the planet. But there's also this issue of XRP the currency which prices are crashing all over the place. You're trying to get banks to use the actual currency that some of we're using the ripple protocol, but they're not using XRP, are they? So how do you address that? In a way you pre mined all this currency made a heck of a lot of money. Let's talk about let's talk about that. But then now you're trying to get people to use expert XRP. You're getting Madonna to talk about XRP, you're talking at any at all ripple getting Ashton Kutcher to talk about it. I mean, these aren't necessarily the people who stayed. Bankers normally listen to it.
Did you have to pay Madonna? I don't know about.
So a whole bunch of things got conflated in there. So let me set apart First of all, I actually would please talk about the largest one second
How does that happen? Is it like you know the agent you guys showed a pro like how
do you I was already answered the question about what's having a crypto crashes? Yeah, Ellen DeGeneres ripple has been very proactive as a company both its leadership team as well as the company and being philanthropic we have supported we gave a million dollars to donors choose which funded every brother if you don't know donors choose it is one of the most incredible organizations I've ever seen that
allows because you have all this crypto leftover when you mind it, like
I think is in a general statement. Silicon Valley enough to give back. Google didn't fund donors to lots of companies in Silicon Valley have a lot of money. I mean, I was a true I mean,
I've never been we may be accused of being the devil in terms of how we partnered with the system. I've never been accused of being the devil for, you know, being philanthropic and supporting causes that are actually good for the planet that comment to speak to that. What about answering the question about I was trying to answer the question we're talking about Madonna. We're talking about the crypto crash. First of all, let's level set 18 months ago the entire crypto market was worth $20 billion. Today it's worth $230 billion now granted in between a hit about 850 billion so it's crashed from 850 by any normal measure. If we drew a straight line from 18 months ago to today you'd say it's been a huge bull market I also point out like there have been a last five or six years multiple quote crashes that have been effectively reconsolidation and we've seen as utility and problems are solved with these technologies. You're going to see a separation, I think, between those that are purely speculative, and those that are actually solving real utility real solving real problems in the marketplace.
Which one are you?
Well, I mean, we've already talked about your own experience of using XRP and using ripples technologies to solve real problems. Which ones are the ones that are joke in the top 10?
I'm not going there flying like the other thing you talked
uses a huge pile of shit. Do you know what I will say? One of the projects,
he has a huge partnership. I think
that these projects that come out and raise a lot of money in some cases, billions of dollars are they don't need that much money. And so I always think it's odd. And I think that if you look the history of Silicon Valley, there are as far as I know, zero examples of companies that have raised massive amounts of funding before they launch a product and being successful if there's examples I can think of kids
did Michel de nights. What is ripple an LP and your fun in Arrington, XRP know did they give you did they give you x RP to help start the fund will
know I mean, you're saying like they're not an investor. They just give me a bunch of free XRP it's a fantastic idea yeah, I think it's like a marketing expense it'd be like an English did Madonna get how did
much Yeah, right. So that's, that is markets and you are not Madonna. You'll want
to do is voices in is
not a charity. Let's just be
Madonna. Can I
just say we didn't give money to Madonna? I gave money to a philanthropic effort
around that Madonna was a champion. Okay. And,
know, we didn't he wasn't he was delivery I mean, he and Madonna or friends and so he has been active in that but not What is it? What by the way? What is it with this these XRP fanboys on Twitter you got me you want to follow a called XRP Trump on Twitter you've got
I like that guy a woman called Tiffany Hayden he basically just goes exercising all the time she's read what's going on
paying them to show that's that's that's a little room that's a little rude to accuse him of paying well
it's just a question it's a
fair question is do we do not pay I mean I'm not a marketing expert we have a lot of advocates pay them to you know okay yeah he
does see why do you think that they just trying to boost currency
I guess what they're doing is correcting the record there they're going out and saying look somebody says something frankly similar to what you said which is XRP ledger centralized? Yeah, it's factually not true. It
it Okay. Let me see something. So this goes to Is he the devil as well. So you know, there are there's we haven't you need to come back there. I mean, look at one of the most interesting books I've ever read his guns, germs and steel. And I'm sure many people in this room of Reddit, and we are we naturally are tribal. And we form teams. And when you add storage to that in the form of money, you've got a situation where you have what from the outside looks crazy of these everybody forming up in these teams and I have been sort of de facto named to the XRP team, even though we hold a very small amount of XRP today because our LPs actually want us to diversify, but I'm just sort of given I'm sort of named part of that team. And you got the fanboys for everybody, and they're all the same. I mean, they really are the fanboys for Bitcoin. And the fanboys for XRP are literally, I mean, they're saying this almost the same things, and it's just sort of creepy and weird. But some of these people in some of the ones who named aren't creepy and weird. They're actually like enthusiasts who have changed their lives and the lives of their family. I mean that you mentioned Tiffany, she's like a single mom who has helped raise her children because of her investments in crypto currency. That's not a joke. I mean, that's a real quick Yeah, fair
comment. That's fair comment. What about I mean, one of your views, also, your criticisms of theory is that I mean, it's got a big Developer Network and you're trying to boost the amount of developers using XRP with an expert in this project called spring spring
it spelt with an ex, but it's called spring, which you're trying to get developers onto it. That is, it's a bit like Microsoft trying to get developers to develop apps in a way, isn't it? You're trying to boost the market, do you think?
Well, I think there's lots of people that invest in developer ecosystems. Yeah, you know, the observation I'd make about the theorem ecosystem today is there's a lot of experimentation. There is not a lot of successful deployed, we're solving a real problem
feel about a CRM tool, general view.
There's a lot of interesting experiments going on. Should I
be interested? I don't either, but you do Bitcoin? I do.
So like, I think, I think one of the mistakes and Mike was Mike's likes to make fun of me for lots of things. But one of the things he was talking about backstage is years ago, I wrote this thing called the peanut butter Manifesto. It was a long time ago. And the thesis was that Yahoo, where I worked at the time was spreading itself too thin. It was trying to do too many things, serving too many masters as opposed to really specializing and being the best in the world at something and I think in many ways what's going on in the crypto land is similar. You have ripple has very specifically decided to go very deep in a particular vertical with a clear customer, a clear value proposition in solving a clear problem. Yeah, there's a lot of these things. I mean, look at, you know, you read these things I read, I was meeting with some of the IBM team and they were talking about using a blockchain to track flower freshness.
I think I don't I don't get it. Yeah, you know, first of all, I think a database even invest more often than not a database is going to be more efficient that a blockchain and people use words like blockchain and crypto as catnip for the investors that were up here before us. That's true. There's, um,
do you feel that ripple try and replace swift in the banking system? Is that
I hope it goes well, I
Something has to improve upon. Swift Swift is it's like, we never even got email, right? I mean, it's like, we're still using snail mail for everything. And something has to has to give him that
I mean, we're gonna have done the SEC, by the way,
at some points. I mean, what would happen, do you think if the SEC decided to declare XRP security?
Well, first, the answer that we got to make sure we understand what is a security security is something that represents ownership in a company that gives you rights to dividends, give you rights to governance, things like that. XRP and ripple are two separate things. There's, we have shareholders and ripple the company we have investors that include Google Ventures, we have banks that have invested they own shares of ripple the company when you buy XRP, that doesn't give you any rights to the profits or ownership of ripple the company I
it's important understand that you think that's gonna that'll,
again, it's an age gap between you and dcvc, there's multiple air gaps, the amount of misinformation on this one, I think, is also profound. If If ripple the company I mean, we have joked we had an all hands about a couple months ago. And, you know, some people think is very funny. But he's pointed out that if ripple, the company shut down tomorrow, the XRP ledger would continue to operate. So if XRP as a security, it's a security of what now one of the other things that people talk about is information asymmetry, that if a company has information that could influence the price, then maybe that is more like a security. And the irony there is one of the major drivers of inflection of the price of XRP is Coinbase the rumors about is Coinbase going to list XRP or not. So does that mean XRP is the security of Coinbase or ripple? So like, I think the facts are pretty clear that
XRP is not a security and I think that, you know, as time goes by, that will become clearer, so I don't spend a lot of time worrying about they seem pretty relaxed about it. I actually am pretty accurate. I can I think the facts are on our side, Mike, you're even doing a ton of traveling as an investor. Now, you you've famously said that you're devoting the next 10 years or so to crypto and blockchain instead of you know, the old traditional VC model from crunch fund,
you know, Israel, Singapore, Europe, do you think the SEC is is eventually going to start to regulate this or I mean, what's your view about how the position that's taking have they talk to you that?
Fucking SEC. So first of all, yeah, I got a letter. I invested in a company as a private person last year, not as a fund and they sent me a subpoena. And it was like, literally accusing me of crimes because the company the CEO of the company, had once spoken at a TechCrunch conference years after I left TechCrunch, and like, if some quid pro quo and like it was like, they're actually making like criminal and my lawyer had to deal with that I end up spending $30,000 getting the fuck off and I'm like so first of all I don't like I'm libertarian, I don't like the government in general. But the SEC forgetting my personal issues with them, because it was just money I'm actually like irate because the SEC is single handedly fucking this industry in the US. And so we have a few good US investments properties. One of them I'm wearing their t-shirt and other one is reserve a company in Oakland and a couple of others. But 80 to 90% of our investments are in Asia, Europe and Israel right now, because they actually they're actually countries where there's enough regulatory certainty the countries that that entrepreneurs feel safe starting control token companies, their Bitcoin or sorry blockchain companies there. Here they don't. There's so much regulatory uncertainty. And then add to that the tax burden and the visa burdens of coming here. And then our current federal government's stance on immigration in general, if they're just saying fuck it, and they're staying in Singapore or Israel or Europe, instead of coming here in starting companies as it is, it is the SEC needs to get their act together. Because if they hadn't on that, with the Internet in 94 95, TechCrunch and this, none of us would be here. We'd all be living in in Shanghai or somewhere else wherever managed to get their act together. So when the SEC person comes on stage, first of all, I'd kick them out the conference. But if they actually come up on stage, I've asked him like, do you realize you're single handedly like wrecking the next stage of technology development? And how do you feel about that? And, you know, see what she says so, yeah.
Well, I think Mike feels strongly about that one.
I really, I really, I really feel like fairly strongly about that.
Like I will, Mike and I agree on some of that we actually disagree on some of it. And he and I have talked about this, we are a Trump supporter, right.
So that's probably
In California you can get shot like say anything like to confirm or deny?
Like, I don't think I would say you look
Right, or you just look. Actually I know you don't like Trump? Yeah, yeah, I
can neither confirm nor deny look on the top of the SEC. The one thing I will say is there are unequivocally bad actors in the Ico ecosystem, there have been frauds are been massive scams hundreds of millions if not billions of dollars have been heisted and if anything I'm surprised the SEC hasn't been more aggressive going after some of those bad actors like who now that doesn't take away
what is naming them the clarity
would be very helpful. And I agree with him that there is a risk that a lot of this development ends up Non Us and the impact on the United States economy for having the the internet that we think of today being very us centric in many ways. It has been very, very positive United States
Oh, I'll talk positively about so there's a project that I find very interesting called auger. I'm very interesting right happen there. I'm intrigued you'd like Trump because he's about tearing up all the regulation
like a ripple as a company wants to work with regulators around yes
on the talking points. He's like the not going to question
my public donations to political figures is documented on the internet.
fair comment? Well, unfortunately, I don't have access. So we'll have a blinking Google Michael finally. You you've needed famously need from continue founded TechCrunch heaven. Heavens about Thank you. By the way. Thank you for having me. And you are the oldest I am. I am about 3000 years old.
Yes. I didn't mean how old are you actually have been here longer than any. You're actually one of only a couple people who were hit when I was here. A couple of people left of us. Yes. Still going. Yeah. Lately thrown the rest of it. It's good that there's still a couple people here. We love what we do. Because now there's so many of you. That's a lot. And I don't even know. Like, there's a question in
here. Someone left,
TechCrunch you founded crunchfund famously. I remember the unplayed blogger t shirts. And he founded crunchfund and last year you founded Arrington, XRP really the same old beats into the crypto but I mean, how's the how's the relationship with conch fund? Now, did you leave on good terms? any bad blood?
Oh, yeah, no, everything's fine. I just think that I wanted to do crypto, my partners didn't as much and I believed in this. Obviously
it wasn't just that I believe in crypto. It's also I'm a little tired of the VC game. It's very different. It's all new players in crypto. It's younger, fresher, more interesting people from all over the world. The VC game has gotten very, very tiring to me also. And I could go into that, but I won't. But also crypto moves much more quickly. Those of you in the audience who in here considers themselves a crypto person. So you actually more than I thought, you know, like the crypto world moves like significantly faster than the normal tech world, which already moves quickly. But a few months feels like a year or two in crypto. And I actually like that. I think it's keeping me young. It's keeping me excited. And it's just a lot more fun. So yeah,
so Brad, finally, are you actually the richest person in color phone? You know, I have no idea. I even had a start answering that question. It's a very rude question. I apologize.
Well, I should leave it there. Then. I think
Larry Ellison, I think he must win that.
I think Larry or Sergey are the two Larry's Larry Page. I probably the money yeah, I have no idea. Yeah, guys. Thank you very much. Thank you. Thank you. Appreciate it.