Spotlight Interview: Pete Rizzo of Kraken
Thank you for joining us for this edition of the NovaBlock newsletter. Here, we explore the intersection of technology, finance, politics, and of course, the crypto asset space.
Based in San Francisco, Kraken is the world’s largest global digital asset exchange in euro volume and liquidity. Kraken’s clients also trade USD, CAD, ETH, XRP, LTC and other digital currencies, on a platform consistently rated the best and most secure bitcoin exchange by independent news media. In my interview with Editor-At-Large Pete Rizzo, we discuss insights in Kraken’s report “How ‘The Great Wealth Transfer’ Could Give Bitcoin a $1 Trillion Boost”, his views on the growth of the space, and how the crypto media landscape has changed since the early days. - Leeor Shimron
Leeor Shimron: For all of our readers, please tell us a bit about yourself and your role at Kraken.
Pete Rizzo: My name is Pete Rizzo and I am the Editor-At-Large at Kraken. Prior to joining Kraken, I was the Editor-In-Chief at CoinDesk, one of the leading crypto media outlets. At Kraken, my focus is to deliver great content and align the Kraken brand with the crypto ethos, which includes the tech and innovators spirit of the crypto community.
Shimron: You’ve been with CoinDesk for six years before joining Kraken. How has the crypto audience changed since you first started covering crypto in 2013?
Rizzo: The audience has definitely grown which is reflected in the huge investment made on the media side of the industry. During the last Bitcoin Halving, CoinDesk was pretty much the only media company covering the Halving and live-blogging it, whereas today we see many more media outlets covering it. We’re seeing four or five different livestreams happening around the world today covering this Halving, bringing speakers from around the world together to discuss various topics within crypto. The biggest change is the tremendous capitalization of the media side of the industry. There is significantly more demand now, which goes beyond the early tech tinkerer audience, to people who are now considering crypto as something they are learning about to make major financial decisions. In 2016 during the last halving, it was more of a fringe activity, which was much earlier in the process of becoming mainstream.
Shimron: Starting as a cypherpunk movement, Bitcoin was gradually adopted by libertarians, speculators, retail investors, and now possibly institutional investors. How are new users learning about crypto?
Rizzo: People who are newer to the industry should understand how long it takes to truly understand Bitcoin and other cryptocurrencies. When I joined the industry, something that I had to unlearn was that the “experts” did not have all the answers. Crypto and Bitcoin are still very new, and it is still very hard to wrap your head around what the industry and the different technologies are trying to achieve.
Bitcoin has a very specific set of first principles, which are not written down. There is no single place to go to learn about alternatives to government money on the internet. The industry as a whole is coming to agreement internally and is improving how to broadcast these principles externally. After 10 years of Bitcoin being around, there is a solid understanding of its first principles, but it is still hard for newcomers to understand them. It takes a long time for newcomers to accept its existence. There are things we want to improve about Bitcoin and the crypto space, and there are also things the community wants to preserve. In my 6-7 years in the industry, I have changed my views and had to learn to think differently and embrace new ideas. And I encourage all readers to expect this type of development for themselves.
Shimron: Do you see an inherent bias of exchanges falsely hyping up various crypto assets to increase exchange trading volume? How important are unbiased media publications for the health of the space?
Rizzo: There are bad actors in every part of the space. Kraken specifically has a durable and thoughtful process for how we approach messaging and growing the industry. I can see that in the types of people who are coming to work at Kraken. Kraken is attracting people with tremendous reputations who are aligning themselves with the company, and they are doing so because Kraken respects the crypto ethos.
It takes an effort from everyone in the industry to ensure they communicate things responsibly. It is not something that is solved industry-wide. Historically, a lot of people in the industry had the intent to enrich themselves, which is prevalent in any emerging technology space. But, that is something that has gotten better for the industry as a whole. There are much fewer fly-by-night scams. There is much better understanding about consumer protections and how to minimize harm, something I see at Kraken and across the industry. Those are great first principles. Everyone should have the goal of minimizing harm and encourage embracing the positive qualities of the technology.
Shimron: Do you think regulators will play an increasing role in regulating the space? Or will industry participants come together and self-regulate, reducing the need for external regulation?
Rizzo: The relationship between the crypto industry and governments/regulators does not seem abnormal. Everyone within those groups is trying to understand a new innovation and technology. And I honestly think those groups have worked very well together. The industry has shown time and time again that it wants to minimize harm and protect consumers. And it has done so while dealing with unique challenges. Around the time of the last Halving, Bitcoin was the only cryptocurrency, and we did not discuss the existence of multiple cryptocurrencies. More recently, the industry was forced to reckon with the idea that creating new cryptocurrencies was very easy. And they responded with self-regulatory groups, raising awareness of specific issues. Traditionally, we’ve seen these grassroot efforts form very quickly in the industry.
It is important to remember that no one is a regulator and no one is a crypto holder in the pure form that your question suggests. On a deeper level, humans broadly need to understand Bitcoin and what the tech does. Those humans tend to come together in groups where they have a role to play. And they are forced to contend with how to deal with crypto from that vantage point. It’s not like we are all on separate baseball teams, where the regulators are playing against the crypto holders. This is a challenging new technology and challenges all of us in different ways. And I think historically these groups have come together and proven they can work together pretty well.
Shimron: Kraken Intelligence recently released a report titled “How ‘The Great Wealth Transfer’ Could Give Bitcoin a $1 Trillion Boost”. Can you provide a high-level overview of the report?
Rizzo: Kraken has an internal team called Kraken Intelligence. The team produces reports that take critical views and answer questions about the industry. The idea was to take something that was at first a vague impression and examine the hard data. There is a growing group of people who believe in Bitcoin as an alternative to government money, as it has a specific ruleset where the supply of money becomes increasingly scarcer. This group generally believes this system will create a currency that increases in value over time. We wanted to take this vague impression and see if there is data to support it. So, we examined authoritative sources and made reasonable estimates, focusing on frameworks and shying away from specific predictions.
By accessing government resources, we found data on how wealth transfers between groups in the United States. The report looked at the populace, analyzing factors like life expectancy and how wealth transfers between populations over time. The hypothesis of the report is if we are to assume that Bitcoin succeeds as a store of value over a great length of time, we presume future generations will have an interest in storing their wealth in Bitcoin, leading to the growth of the network. If we assume a certain amount of money will transfer from older generations actively engaged with wealth management to their families at the end of their lifetimes, can we take that figure and extrapolate how much of that money would be invested in Bitcoin? We tried to answer the question of how this transfer of wealth might benefit Bitcoin and increase its value over time. The study provides a framework without making hard predictions, inviting the reader to come into the report and consider a range of conclusions based on varying assumptions.
Shimron: The report posits that crypto adoption will follow an S-curve, similar to the growth of the internet. When and how will mass adoption occur?
Rizzo: We should question the phrase “mass adoption.” It is often misused in the industry. I’d like to provide one analogy as a way to think about adoption. Does baseball need mass adoption to be a viable sport? The answer is no, it just needs to economically incentivize enough participants to continue its existence. Baseball needs to incentivize people to buy tickets to games. It needs to pay top athletes and incentivize them to play baseball. It needs to encourage executives and business people to be involved in the business of baseball.
That’s not to say that every person on the planet needs to be involved in the playing, business, or watching of baseball. It presupposes that the economic activity that baseball provides, continues to provide baseball. We live in a world with the idea that there is this sport that encourages people to come together and provides economic value, which is enough value to ensure it does not get shut down. There is more baseball every year because it is a profitable endeavor for those involved with it.
The analogy invites people to consider Bitcoin and crypto as something that exists in the world, even if 100% of the population never engages with it. Bitcoin needs to continue to be economically viable, which will allow it to propagate regardless if it ever achieves so called “mass adoption.” Bitcoin is a distributed system, in which many different economic actors contribute to the system: miners, nodes, exchanges, media outlets, holders engage with it according to its predefined economic parameters. I personally believe Bitcoin has proven itself and has a bright future as a monetary asset. I think the focus on adoption colored the conversation away from the more pressing goal for Bitcoin to be economically viable to continue its existence.
Shimron: Are there any other insights from the report you would like to share?
Rizzo: The report provides a framework for analyzing a large number of data points over an extended period of time. As an example, the number of Bitcoin wallets containing between 0.1 and 1 Bitcoin has grown substantially, growing to almost 2 million wallets at the beginning of the year, compared to just 250,000 in 2014. Additionally, the number of jobs in the industry increased 1,500% in the same timeframe. All the while, the Bitcoin network’s uptime continues to be nearly 100%.
Beyond discussion of Bitcoin’s price, it behooves us to ask deeper questions about how the network is operating and if more people are using it, and the data is showing this is unequivocally true. There are other surveys and studies referenced in the report showing that millennials, gen X, and individuals in the U.S. continue to have a positive outlook on Bitcoin and other cryptocurrencies. All this data shows that Bitcoin is here to stay, maturing, growing, and continuing to be economically viable.
The report concludes that if we see only a small percentage of global wealth trickle into Bitcoin, it has a sizable impact. Assuming that 5% of the wealth is transferred from Baby Boomers to younger generations, after applying the inheritance tax, about a trillion dollars of wealth would flow into Bitcoin in the coming decades. This is a single data point, a single economic behavior that exists in the world, which makes the conclusion that if just a small percentage of inherited wealth flows into Bitcoin, it will have a material impact on its growth. I encourage readers to take a look at the report, and I think they will be surprised by the results and the positive outlook for Bitcoin.
Shimron: How can our readers get in touch with you and learn more about Kraken?
Rizzo: Please visit blog.kraken.com, which is where we publish all our research, announcements, and updates. You can also find me on Twitter @Pete_Rizzo_.
Shimron: Thank you.