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Cryptocurrency is everywhere, but policymakers and venture capitalists are still debating how to regulate the space and use it to solve the economy’s biggest problems.
Welcome to the Venture Capitol podcast, the place where politicians can impact the startup industry nationwide. Join NVCA President & CEO Bobby Franklin for a unique podcast that looks at public policy through the eyes of America’s venture capitalists — the people who are investing in the high-growth companies of tomorrow. This show brings together VCs, policymakers, and policy influencers to discuss and debate issues that affect our nation’s economic future.
Bobby Franklin (00:06):
Hello, everyone. I'm Bobby Franklin. Welcome back to NVCA's Venture Capitol Podcast, where the "O" in "Capitol" stands for Capitol Hill, where NVCA advocates for policies that support the US startup ecosystem. In this episode, we're going to focus on cryptocurrency and blockchain. From balance sheets and boardrooms to the auction of digital art pieces, crypto is everywhere, but how much the blockchain will change and challenge the world we live in is still emerging, and the venture industry is at the center of that crypto revolution.
(00:39):
To talk about how VCs are investing in impacting crypto is Alka Gupta, venture partner at Finn Capital. Alka is a tech entrepreneur and Fortune 500 executive with deep experience in digital transformation, FinTech, marketplaces, and identity. She has operated in built revenue in B2B and B2B2C markets across more than 10 countries in Asia, Europe, and Latin America. Alka is also co-founder and former president and board director at Global ID, a venture-backed portable and interoperable identity platform-leveraging blockchain. Welcome to the show, Alka.
Alka Gupta (01:17):
Thanks, Bobby, and thanks for having me.
Bobby Franklin (01:20):
Alka, let me ask you, what are the greatest success stories of blockchain?
Alka Gupta (01:25):
I'd suggest some of the most successful stories have been out of, in fact, that iterative financial services use case, and more specifically, stable coins. Obviously, we're still very much in the early innings from usage to regulatory and compliance, but certainly, if we think about where blockchain started from the notion of decentralization, faster, better, cheaper transactions, et cetera, there seems to be significant amount of encouraging use case excitement around stablecoins and what it can do for the digitization of mainstream currencies for the masses, right, and not just about the fringe use cases around, whether it's crypto, et cetera. I think stablecoin specifically, the notion of digitization of currencies globally is something that has entered the conversation with larger central banks as to how do they digitize currencies, so I think there's a lot of optimism there. Certainly, there are other industries like supply chain, healthcare where there's been a lot of hope, and certainly some early success stories, but that has not yet reached what we might refer to as more mainstream.
Bobby Franklin (02:57):
Well, staying on cryptocurrencies for a second, how will the use of cryptocurrencies solve issues within our economy?
Alka Gupta (03:05):
What folks like you and I in the industry want to invest in is meaningful ways that cryptocurrencies can make people's lives better. What will it do for our economy today? There's perhaps maybe a couple areas I might highlight. One is going back to the core of blockchain and cryptocurrencies, the notion of decentralization, immutability of information, data, and so the hope, one, is that maybe if we get it right, more and more will be comfortable to participate in what we say, in the economy as opposed to under the radar. The hope is that we get more and more to participate and be comfortable to participate in our national financial economy.
(03:55):
I think the second thing is just thinking about the benefits of cryptocurrencies, the real time, the low fees, the decentralization, all of that allows if it is regulated appropriately, and if it goes mainstream, there is the ability for instantaneous payments. If you think about it today, more than half, depending on what data point you look at, call it 64% of our economy, of our citizens live day-to-day, right, paycheck-to-paycheck. Just imagine a world where even one or two days earlier of paychecks being deposited instantaneously with low friction will make a difference to a large swath of our economy. I think that's a second way where I think it can solve issues of in instant payments, right?
(04:50):
A third thing would be in cross-border. A lot of our economy as well today does send funds across the border. We have both funds that are going in and out, but if you think about, as you well know, it's highly talked about, the fees and the lag time again in that industry are exorbitant and likely affect those who, frankly, can afford it the least. Again, all of these examples that I'm giving are about ways by which you bring in the timeline, you reduce fees, you get folks to be empowered to plan a little bit more, to do a little bit more forward-thinking with funds more instantly deposited.
(05:39):
I think the last thing in this bucket would be just thinking about the economy that we're in today and the inflation, the supply chain challenges that we're seeing. Many would point to cargo containers that are sitting at ports, whether it be for verification of whatever information, some of that being payment. Another problem that folks say that faster, better real-time payments in the form of cryptocurrencies could solve for economy could be unbuckling, if you will, or loosening up the timelines with regards to what we're seeing in supply chain timing, and associated inflation. Again, there's many that I'm sure we've not yet even seen, but these are a couple of areas where I think if we could get more mainstream adoption safely where consumers and businesses alike are protected, we could see benefits for the economy as a whole.
Bobby Franklin (06:38):
Well, that leads to another question. As you know, I sit here in Washington and talk to policymakers, so what advice to policymakers here in D.C. would you have to make all that you have just laid out more probable?
Alka Gupta (06:51):
Yeah, again, there's so many folks working on this and thinking about this because the last thing we want is for all of this, again, just to stay on the fringes and not reach mass adoption. As you and I have spoken in the past, I believe one of the biggest inhibitors to greater adoption are the safe guardrails and regulatory environment that's required around the space of cryptocurrency and digital assets.
(07:26):
Look, there's lots of good regulation that has been put forth, and I should say lots of good bipartisan regulation that's been put forth, right, whether it be from the Lummis and Gillibrand's Responsible Financial Innovation Act, the RFIA, Kristin Gillibrand from New York and Cynthia Lummis from Wyoming, both states that have been fairly forward-thinking in this space. There's stablecoin regulation put forth by Boozman from Arkansas, Republican. There's the Pat Toomey Regulation Stablecoin TRUST Act. Needless to say, there has been a fair amount of activity in this space, and so I am optimistic that we will get there.
(08:13):
But I think there's a couple of things, right? One is I remember the days when we were doing early regulation for the internet, dare I say, and it hearkens back much of what we're experiencing, right, hearkens back to some of the early days, whether it was back in 1996 Act of Communications Decency, some of the initial internet act. I think the number one thing coming out of that that I'd love to remind all that are working on this, it was an iterative process. We did not get it right initially. We came out with your regulation that frankly, A, that only scratched the surface, didn't touch on everything that we knew need to be addressed, and quite frankly, didn't touch on a lot of what needed to be addressed eventually because we hadn't even thought of some of those situations, and in a iterative manner, starting from the mid-'90s to where we are today, we have created more and more supportive consumer-protecting regulation. But it has been iterative, and so I think the first thing is we're not going to get everything right, but we must get something out there to help those that are engaging.
(09:29):
That leads me to the second message, what I'd love everybody to remember is that the quicker we get some regulation out there, the more, not the less, the more, I believe, innovation and investment we will see in this space. Obviously, yes, there is concerns around regulation. I hear the narrative, right, that regulation stifles innovation, et cetera. But having spoken, having been on both sides, having been one, needing to raise funds in this space and having been one that is looking to assess businesses in this space, there is a fear around what if, right, something changes? What if something is suddenly deemed security? What if? We need to provide more information. The regulation after the fact is becoming problematic, and so the more we are proactive in defining. Again, remember, we can iterate our ways through this as we get more and more data, but I strongly encourage regulation even initial sooner rather than later to encourage and create more entrepreneurship, investment and an environment of innovation, and so that's a second thing that I just want everybody that's involved to please understand, that more will give us more.
(11:02):
I think maybe hearkening back to some of the earlier points that we discussed, I would be remiss if I didn't put a sub-bullet in this, which is, yes, we need regulation, and again, by regulation, right, think of these as guardrails, not rewriting everything, but guardrails, and more specifically, I'd like to see this in the space of stablecoins, again, sooner rather than later. I think all of what we've talked about does need guardrails, but given the potential opportunity with stablecoins, given some of what we've seen, the bad and the good more recently, I think we can make a lot of progress if we are to get some common sense regulation out there in the stablecoins space. Again, as I've identified, Washington has already put forth some really good ideas.
Bobby Franklin (11:55):
Alka Gupta, thank you so much for joining us on Venture Capitol. Very much appreciate you sharing this perspective.
Alka Gupta (12:02):
Thanks, Bobby, and thanks, everyone. Great to be here.
Bobby Franklin (12:09):
To talk about how policymakers should view and regulate blockchain technology is Joshua Rivera, general counsel of Blockchain Capital. Joshua is a legal and regulatory expert on various aspects of the blockchain industry and has extensive experience analyzing the industry's rapid evolving regulatory landscape. Thanks for joining us today, Joshua.
Joshua Rivera (12:31):
Bobby, thanks so much for having me. It's really good to be here.
Bobby Franklin (12:34):
Joshua, let me ask you, what do you want people in Washington to understand about blockchain and cryptocurrencies?
Joshua Rivera (12:42):
We've been doing this, for me, over the last five years. Some people have been doing it for longer. In general, what people hear in Washington around the digital asset space, the crypto space, is probably not a true reflect reflection of the industry, right? What they are usually exposed to are headlines that usually show the worst of the space, or the major concerns. Those headlines are not inaccurate, right? There's problems in crypto, there's problems in any industry. They're not really representative of what's actually happening in terms of innovation in the space, and so a lot of times when we go to Washington and talk to policymakers about the industry, we try to let them know that what they are seeing is a very small fraction of what's actually happening in the space.
(13:31):
Oftentimes, I think there's some stigma attached to people who work in crypto, or maybe some stereotypes about young adults, or adolescents hanging out in their mom's basement and playing video games and making crypto projects on the side over the weekend. I always like to say, "Look, I'm here. I'm an adult. We have a real job." We actually do real work, and we are backing a lot of entrepreneurs who do lots of different things and come from all different walks of life. But importantly, we have a very real vision for how the space is going to continue to grow, and we do believe it's going to impact the world in really significant ways.
(14:06):
I think if you can get regulators and policymakers to lean into the understanding that the innovation here is genuine and well-intentioned, then that actually should affect the way they go about making policy for the space, right, and making regulation. I think too often policymakers are looking at the space as if it is an illicit space, or a nefarious space, and for sure, there are nefarious actors, there are actors who are not using crypto technologies for licit purposes, and those actors need to be addressed. We take a very collaborative approach to policymakers and regulators in that sense. There needs to be more of a balance, right? Part of our job is to go in and educate, help regulators and policymakers understand that there's a vast world of really beneficial innovation that we think is going to better society in really meaningful ways, but it has to be given the opportunity to grow out of these really early stages.
Bobby Franklin (15:03):
Well, that's something we say to policymakers all the time here at NVCA, you want experimentation to happen. You want some of the most interesting new developments in innovation happening in the US and not happening somewhere else, and so when we're talking to policymakers around this subject, we're often talking about how important it is for people that are used to taking risks, entrepreneurs, and people that are used to investing in risk, venture capitalists, and how important it is to let them do that with addressing the bad actors in the space.
Joshua Rivera (15:39):
Yep.
Bobby Franklin (15:40):
Let me ask you this, do you see the public and private sectors fully adopting blockchain in the near future?
Joshua Rivera (15:46):
Yeah, I mean, "near" is a term that we'd probably have to define for me to answer that question correctly, right?
Bobby Franklin (15:53):
Understand.
Joshua Rivera (15:56):
Near future, next six months? No, not fully. I mean, we think venture capital is such a critical tool to help innovation in this space because it has a long-term focus. All of our funds are roughly 10-year time horizon funds. We have investors who are aligned with that time horizon who understand that innovation takes time, that wide-scale adoption takes time. In 2020, 2021, we hit a really significant marker of having about a hundred million holders or users of crypto, which is a really important kind of marker for the history of adoption of the technology. We've only seen that increase since then, and we do believe that, yeah, over the next several years, there's going to be increasing adoption both on the public and the private side of the technology.
(16:46):
Now, this is where it gets really interesting is that governments often don't understand what technology adoption means, or what it means for them. Have we been making it better, making it faster, making it more accessible? Big thing in crypto right now is user interface and user experience, which for the most part, has been pretty trash up until now, and in order for us to move into the next frontier of user adoption, we really need to work with that. People who are non-technical, right, can begin using this technology in the same way that people are non-technical, who didn't understand what TCPI, right, why we needed to use HTTP protocols, or HTML formatting, any of that, right? They were still nonetheless able to utilize internet technology, and so we really need the freedom and the time to have entrepreneurs build out things, try new things, experiment. That's why venture capital allows them the ability to take chances, to take risks, to create things that will break in order that over the long term, we get to discover where there is value.
(17:54):
Then once we've perfected these technologies and these applications, then it becomes really easy for us to go to the government broadly and to society in general and say, "Here's how you can implement solutions to various problems that you have." That's really difficult. It's difficult for a policymaker to think about the tenure time horizon for a technology that has so much kind of chatter about it right now. There's so many people talking about crypto, there's all this volatility in crypto markets, there's all this, "Well, I don't know what it does, but it's super exciting" Elon Musk get tweeting about Dogecoin and Bitcoin's price yesterday was up above 21,000. Today is below 20,000. You just see all these ups and downs. It's really hard for a policymaker to think in the 10-year, right, and to look ahead and speak to their constituents in a way that kind of help their constituents understand that what we're building now is for their benefit in the future.
(18:51):
We really try to convey that as much as possible. We try to bring examples of companies that we're backing, that are helping real-life people do things better, building systems that are going to facilitate access to finance, financial opportunities, and products, a financial ecosystem that's more fair and less exclusionary. We look at all the individual systems that we are participating in, specifically in the crypto space, right? Historically, we're an infrastructure focus firm. We love investing in infrastructure. We've done so for the last 10 years.
Bobby Franklin (19:25):
Joshua, how do you talk to policymakers about the difference between blockchain technology and a cryptocurrency like Bitcoin?
Joshua Rivera (19:34):
Yeah, so we really try to emphasize that blockchain technology is a decentralizing and disintermediating technology. That in itself, it's really just a database, right? Blockchain technology is a database, but critically, it's not run by any central intermediary, and it is usually open and accessible to anyone. The innovation there with blockchain technology is the ability to create systems of value transfer between disparate individuals who don't know each other without engaging an intermediary like a bank, or other financial institution. But critically, for those ecosystems to work, they need to have natively digital assets, right? You can't utilize a dollar, right, which is not technically a natively digital asset in a completely natively digital ledger ecosystem that's decentralized, and so the cryptocurrencies are representations of value that enable economic activity on top of these decentralized ecosystems.
Bobby Franklin (20:37):
Joshua Rivera, thank you so much for joining us today on Venture Capitol, and giving us your perspective.
(20:47):
As VCs continue to navigate blockchain investments, NVCA is meeting with Capitol Hill leaders and policymakers to ensure the venture industry and their startups have clear rules of the road. Joining us to talk more about the industry's advocacy efforts is NVCA's vice-president of government affairs, Charlotte Savercool. Welcome back to the show, Charlotte.
Charlotte Savercool (21:09):
Hi, Bobby. Thank you so much for having me back.
Bobby Franklin (21:12):
Charlotte, why don't you help our listeners talk about how NVCA is engaged on blockchain policy?
Charlotte Savercool (21:20):
I think this is a really exciting area that NVCA is engaging on, and I think one of the ways that we're viewing ourselves and our voice to a lot of the conversations that are happening on Capitol Hill is that we are coming at these conversations, which are critical to the industry from an investor perspective.
(21:38):
I think voices are growing more and more on Capitol Hill at the agencies about this particular technology, but one of the exciting things that we get to provide is the voice that represents the investors who get to see what companies they're already invested in, but also what companies are coming down the road with these opportunities. We have a very active working group of blockchain investors. Some of them are solely invested in the blockchain space, some maybe have a fund devoted to this, and they are very active in helping us understand what are the pain points on the regulatory side, how can we be using our voice effectively up on the hill to advocate for proper legislation?
(22:19):
We recently had a group of folks come into town to do some in-person meetings up on the Hill, and I think it was very productive and kind of sharing our message that we need proper rules of the road. We need a regulatory framework that is clear to the investors and their companies, but we need those rules of the road to allow for more innovation with these startups.
Bobby Franklin (22:41):
What do you see proper oversight and regulation looking like?
Charlotte Savercool (22:45):
I think how I mentioned it before is this needs to be a clear regulatory framework that investors understand that companies understand. I think right now where you're seeing a lot of the frustrations coming from is there's a lot of enforcement happening in this space, but no guidance on how yes, no, how you can move forward from some of these issues, so we need to really work with Congress to ask them to put these rules into place because on the agency side, there's been a lot of challenges and we're looking with working with certain folks on the Hill who are very interested in this. I think there's conversations that are happening right now and there will be more conversations happening in the future as well.
Bobby Franklin (23:29):
We have seen some legislative proposals put on the table, which is encouraging, but there's a wide range of beliefs on cryptocurrency in Congress. Do you have a perspective on these legislative efforts, or any thoughts on how the approach could shift after the midterm elections?
Charlotte Savercool (23:45):
Yes. Actually, right now there's been a lot of conversations on the Hill, the House side in particular about a bipartisan legislative proposal on stable coins. This is something that the ranking member of the House Financial Services Committee Patrick McHenry and the chair of the committee, Maxine Waters, have been in conversations about for quite some time. This is an area that I've heard some folks refer to it as "the low-hanging fruit," and this is something that should be fairly noncontroversial to legislate. I think there's a lot of wide ranging support overcoming to a solution on some of these issues. But this is the first time there's a big bill that could be passed on these new technologies, so I think there's a lot of focus on it, making sure it's right. There are a lot of opinions out there, so that's something that we could see pick up over the last several weeks before the end of the year.
(24:39):
But looking ahead to the next Congress, I think there will be an opportunity for more comprehensive conversations about how the blockchain sector can be regulated by legislation. I think if the midterms happen and Republicans take control of the House, we should see the ranking member McHenry take over as chair potentially and become an even more influential voice in this space, and he's been a great champion, so I think you could see more of an interest in doing a broader market structure bill, which would be definitely something NVCA would be engaging on.
(25:12):
But one of the points that we heard in our meetings recently was this really isn't a partisan issue. It shouldn't be partisan conversations. You see champions on both sides of the aisle. I think that's what's really exciting here is the opportunity in the technology that there are a lot of different kinds of policymakers who want to make sure we get this right and recognize the opportunity in the technology, so I think hopefully we'll be advocating for a bipartisan approach to this and have a lot of folks come to the table, and hopefully we can be a helpful voice in those conversations.
Bobby Franklin (25:45):
Well, you've just given a bit of a preview, but anything else about how NVCA will be engaging in these efforts going forward?
Charlotte Savercool (25:53):
Absolutely. I think these meetings that we recently had were a good place for us to start. I think as we see these conversations accelerate over the next several months, hopefully they will be. We will be there at the table to help provide feedback on specific legislative texts and how folks are thinking about definitions in these types of bills.
(26:14):
I think another helpful way that we can contribute to these conversations are providing education. Like we talked about earlier, we really have this unique investor voice and perspective that we can provide to folks on the Hill. I think this is a challenge for us with that, a lot of people don't understand this, so boiling it down to the nuts and bolts and making sure folks understand why we're talking about what we're talking about, and why we do need some regulatory certainty.
(26:41):
Another area that I think we will be able to provide some help for our members is on the operational side. These are conversations that have to do with various operational guidance, such as accounting, and we are having conversations with those folks as well. We have a conference coming up for our CFOs and COOs and this is likely to be a topic of discussion to help provide some shared best practices among those folks, so we're looking forward to that, and also keeping up the steam for next Congress.
Bobby Franklin (27:11):
Well, Charlotte, thank you so much for joining us. As a reminder to all our listeners, if you are blockchain investor and you're not part of the NVCA blockchain working group, you need to get in touch with us. If you have thoughts on what we should be doing with policymakers in this space, we're always here to help take those calls, answer those questions, and translate what's happening in the industry to policymakers here in Washington. Charlottes Savercool, vice-president of Government Affairs for NVCA. Thank you so much for joining us today on Venture Capitol.
Charlotte Savercool (27:44):
Thanks for having me, Bobby.
Bobby Franklin (27:49):
Now, before we leave you, here's another fun fact. Did you know that not all animals at the White House have been pets? During World War I, Woodrow Wilson bought a flock of sheep to graze on the White House lawn. Not only did it save the manpower needed for mowing the lawn, they also sold the wool to raise money for the Red Cross. Again, thank you for listening to Venture Capitol, a podcast brought to you by NVCA. Hope you enjoyed the show because investing in tomorrow starts with smart policies today. I'm your host, Bobby Franklin, wishing good days ahead. Bye for now.