Global monetary interoperability

Jack Mallers, Matt Odell

Next up, we have Jack Mallers, founder and CEO of Strike to talk about just how important global monetary interoperability is and what that means. We're going to record this one. Jack is going to be led by Matt ODell who I already introed. We're very lucky that Jack came down. He came to Bitdevs in October. Thanks for being here. We're going to focus this talk on what the lightning network means and what it means to communicate all over the world permissionlessly.

MO: Long time no see. What's up, Jack?

JM: Yo, let's fucking go.

MO: Before we get started, who here knows what Strike is? Who here uses Strike? Okay, that's a great baseline. Okay. I was going to start with your introduction. We were supposed to have 45 minutes. Right now we have 38 minutes. I think we'll do a tight 25 minutes and then Q&A so that you guys can ask Jack some questions. The format for the Q&A, I point to you, you shout it out, and then I repeat it. Who knows what the lightning network is? Raise your hands. This is an easy crowd.

MO: When you look at the lightning network and at Strike, how do you see lightning playing into basically a global vision for your company?

JM: Um, a mental model that I enjoy that I preach internally at the company is that I like to think of it as the internet just to familiarize we all lived through that. What I mean by that is that the internet as an open distributed communication standard for the world. It offers free and instant communication of data packets to anywhere on the planet. The internet has an open standard, and it's better at publishing news than the news paper. It's better at radio than radio. It's better at streaming video than television. You saw these independent communication channels that we had previously built, which was a human right freedom of speech, all consolidating into one global standard. There's no such thing like oh you're cross border? No, I can send a tweet and the guy next to me and the guy in Japan will be able to read it in 1 second. Bitcoin lightning network is better at remittance than Western Union. It's better than Visa at payments. It's better than the Federal Reserve. It will consolidate all these independent financial functions into a single spot. I go on to CNN and I get like, what, 60 seconds? Cross-border payments is the most violent way, it's educational that you can send a dollar and you get a euro in a second? It's like pulling up an empty email form, you're going to send a form, and in that email form you have to say this email is for firing someone, or about flirting, or it's going to Japan? Nope, you type in the words, you hit send, and it's there in seconds. When I look at a lightning invoice, it's not like you can tell who it is from the QR code or whatever. The fuck? No, it's the same thing. No matter where I send it, it will get there in less than a second for free. Look at all the independent financial functions consolidating into a single global standard, and the winners will build the best experience on top of it. That's how we operate at Strike.

MO: I just want to thank Jack for joining us. Obviously we both think bitcoin is revolutionary, and lightning is revolutionary on top of bitcoin. What are the pain points your company is seeing? You're probably the number one transactor on lightning. What are your pain points?

JM: Yeah, so, like I was just hinting at. From the highest level, we think about best experience, best brand are going to be the winners of this open system. The world I want to enable is that Jack Dorsey who I think is one of the greatest creators of our own time can compete equally with Jamie Dimon which is not the case today. Our approach at Strike is to be regulated, be compliant, move cash collateral like dollars and euros to make for a very particular experience that someone like large merchants can be interoperable with the thing. The legal and compliance and the education required to talk with some of the bigger nation states is usually the challenge. It's interfacing an open monetary system with the systems that exist today, the fiat side fucking blows. It's fucking hard. Somebody has to do it. I only got one employee here, I think. The other thing I talk about is that we pride ourselves on the difference between a good human and a great human is doing the right thing no matter how hard it is. Telling New York about what the lightning network is. Bitlicense. We want you to be able to wlak into Whole Foods and buy your groceries over tor, that's the world I want to enable for everyone else. Someone has to take hte bullet and do the work. That's the hard part that people don't see. As far as the software goes, that's the easiest part in the world. As far as lightning, Strike has more lightning employees. I got all Square's employees, I got MIT professors, I'm swimming it, I'm just paying 150 people not everyone. That part comes easy.

MO: You talk a lot about lightning, bitcoin, open monetary network, driving fees down, driving remittance costs down, driving settlement times down, creating broader access. So let's jump ahead a little bit. Say we're 5 years down the road, lightning is extremely successful, Strike is extremely successful, and maybe bitcoin is not the global standard for money yet but we're getting there. How do you view your company in that type of situation where any other company can join this open monetary network and that individuals can use it sovereignly? Where is the competitive edge? How does a company exist?

JM: Well, what about the internet? How valuable would the internet be if Google was the only internet company? It wouldn't be valuable at all. You wouldn't be able to search for anything. The thesis is important. I just met a Cash App employee. It was a pleasure because the thesis is that, it's not Jack is trying to conquer the world and his dad was part of CBOE shut the fuck up. The thesis is that a network is the one that is going to defeat the Fed and commercial banks and card processors. A network has to consist of participants. A network is only as strong as the participants.

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MO: With the current web model, when you see these tech companies, you already mentioned Cash App. When you see a Google or a Facebook, their business model is to essentially lock people in and they make the switching cost extremely high. People are using calendars, photos, email, they are completely locked in. If they get rid of Facebook, they lose all their friends and family contact information. The power of bitcoin that you talk about all the time it is that it is an open monetary network that everyone can interface with. Will we still see successful lock in models, or will they be non-competitive against more open companies? Will we have closed lightning things happening or will it be dominated?

JM: There is no closed lightning thing. The network effect that Google has built is not the same. This is where my analogy might break. It's similar to you can't just delete Cash App and start using Moon Wallet. Cash App does my taxes for free, that's a network effect. It takes engineering, legal, compliance, how much money they pay CardiB. That's a lot of shit. It's not that simple either in the same way that I can't just leave Google. Maybe I can use duckduckgo when I'm searching for porn or something, right? But I think of it that way. It's a business, you have a right to build your moat. The difference for me and this is when I was talking with Barry early trying to convince them that this was a business, the internet selling communication services has no business model and it's difficult to drive revenue in allowing humans to communicate. Selling financial services is natural and inherent, though. I know what a customer is worth. I can go to a Costco and charge them 5 basis points to give them an instant settlement system where 70 million Cash App users can pay. That's all gross margin profit, not splitting it with any intermediaries. Facbeook has never had that. Facebook has been deeply incentivized to hone you in, collect you, and assault you. I don't think lightning will have the same problem. Selling money is as old as time. A businesses's ability to build a moat and make switching costs high, no I don't have a problem with that.

MO: You were pretty famous for opening Strike in El Salvador, support for Strike in El Salvador it was your second country. Then the legal tender news came out. Whenever you or Strike tweets, the next message underneath that is when europe? When you look at global expansion for Strike, how do you view that strategy? What are the - obviously the pain points are on the fiat world side of it? How do you look at that? Most companies wouldn't pick a country with 6 million people and no GDP.

JM: Yeah, better off getting a bitlicense from that perspective. Almost have a bitlicense. I'm close. The cool thing again, another internet analogy, is that Facebook is powerful because they have 4 billion users. The worth of one user can be less because they have more. That's a powerful idea. Their target audience is everyone that has a pulse and is responsibly old enough to use their service or whatever the compliance guy says. That's a powerful concept. We're the same way. There's some nuance in selling finance. How are we going to pull it off? People tell me launch it in every country, no shit I'm working on that. But in 10 years, you will say holy shit did that happen fast. Now that we're living in it, we're refreshing twitter every 10 seconds asking for that dopamine hit. This is going shockingly fast, though. Here's a tip for you. El Salvador, Honduras, how do they get cash in and cash out? There's no Plaid. There's no-- nobody has a bank account, bro. How do I cash them in and cash them out? You have to build local checkpoints. How do those scale? I don't want to build a service that is hot for a second but doesn't scale. Those are real problems. I'm starting from scratch. We think about it in terms of the developed world, largely the US, UK, EU. Visa, direct deposit, etc. All of our merchant acquiring services works the same. It's one global open network, it's not like oh shit the node is in Europe no it works the same. Then it's about licensing and banking relationships. For the developing world, it's about how do I build a scalable way to interface them into the world today? Nobody has looked into that problem in the last 200 years. I'm figuring it out.

MO: So you said checkpoints? That's like cash to what, cash to bitcoin? How does that look?

JM: 70%+ of El Salvador doesn't have a bank account, but they do have dollars. So how do I get dollars into Strike? Well there's no Square merchant there. So how do I do that? Walk into my local pharmaceutical or equivalent and say, hey I'd like this on Strike? No, like if I got a $20 billion here, the pharma guy will type something in, then get it out. But you don't want to build 5000 of those and 100 in each countries. So you use small businesses that already exist. We want to build a scalable way to give a great way to have on off ramps for these people. Stablecoins I think are very interesting in the sense that.. here's the thing, why does Strike autosettle to dollars fucking... you can't force someone. If someone wants to own bitcoin, they will. If they don't, they won't. I'm not going to sit here and jam bitcoin down anyone's throat. If there are people living paycheck to paycheck in poverty and are scared to live through what is knonw as real volatility of an asset, they literally can't afford it. I'm here to help people with bitcoin to find interesting ways to use bitcoin as a tool to empower it. In the United States, maybe that's letting you DCA by the hour at no cost, no problem that's on us. But maybe in El Salvador, maybe they need a way to make lightning payments with cash collateralbecause they an't afford a 20% deep between Barry Silbert tweeted something stupid.

MO: So cash collateral- your balance on Strike is USD, so you send, it switches to USD by default when you send bitcoin? You have gotten some flak about using stablecoins. In Argentina, was that your third country? How do you view the stablecoin integration?

JM: I like using the term cash collateral because I'm not a dollar maximalist. It's whatever you want to interface with this open network. If you get paid in dollars, you want to go to Whole Foods, and you spend dollars, Whole Foods receives whatever they want. Everyone knows we use lightning for that. But the point is that Strike is agnostic to the idea of what you want to interface against lightning. I don't give a fuck. You want to use bitcoin over lightning? Great, I don't care. I think it's just a premiere payments network to make payments. It's better at being Chase and Visa than Chase and Visa. If a Cash App user wants to walk into Whole Foods and make a payment, then they scan a QR code, they settle instantly, and no intermediaries. That is going to scare the living dog shit out of them. Jack Dorsey and Jamie Dimon on the same playing field. That's my whole thing.

JM: Argentina, okay. They don't want to hold their own currency. They want dollars. Holding dollars and accessing dollars is illegal in Argentina. As a regulated entity, why not tell regulations to fuck off? Well then all your accounts get shut down. What do you guys want me to do? Well, what about a stablecoin? Which is, am I pro any shitcoin? Anyone who has fucking followed me long enough... how about this, am I pro Chase Bank? Am I pro Bank of America? No, but you use that with Strike right? It's their Chase bank. They want to hold dollars, I can't legally do that, and Chase, Tron, all this stuff is all the same fucking scammers. It's just a giant fucking scam. That's it, right? We're working on making sure Liquid USDT is legal or doing it, I'm funding work to do it in a non-custodial way and maybe Strike doesn't offer that but it's valuable. That's the whole context and the point. We didn't even have any Tron or whatever the fuck and legal... we're agnostic, if you want Starbuck points, Tron tether, ... initially we did ERC20 USDT because it was the most liquid. Here's the other thing, sitting here in this beautiful Austin home saying oh that's scummy. Sure, but there's people in poverty that have some of these, it's accepted and traded in their black market. So if you give me the really cool high classy Austin version, I can't fucking use it. Then we learn they switch to Shiba or Tron or whatever, whichever one Andreessen isn't minting stupid monkeys on. It's whichever is lowest fees. That's how it goes. Then regulators came and said there are people on your app where the only way off your app is accessing the bitcoin network, and that's dangerous and misleading. They are holding tether, but when htey send it out it pukes out as bitcoin, and we got in trouble for that. That's the only reason you can withdraw over whatever stablecoin it was at the time. They claimed I was being misleading... whatever regulatory body in Argentina... so as of now, actually, we talked with them and explained why it didn't make sense, and now we have taken it out. That's the thinking process. People in Argentina said Argentino peso collateral, and I said okay, not becaues I'm fan of the peso but because I want to help. I think stablecoins and Chase Bank are the same- they are both scammers, my counterparty risk could be better... I don't know.

MO: You make it seem like Strike in the future the user will get to choose what their cash collateral is. Or do you think in America it will always be USD?

JM: You guys will see some announcements come out. These are all, as I've described, shitcoins are arbitrage on a trend. They are informational arbitrages that the monetary expansion is forcing everyone to save elsewhere except a saving saccount. As a16z, how do I make money on it? I spend marketing dollars to convince someone on Robinhood that hey I invented Netscape, buy this piece of shit. There's also regulatory arbitrage. It's illegal to sell someone a savings account that is traditionally in property or dollars, and it's violently disobeying securities laws. Regulators are slow, so there's arbitrage on a trend, a rush to save into something and nobody knows what the fuck is going on. This room knows, but not everyone else on the street. Andreessen can get away with people buying Shiba because they are violently disobeying laws that are designed to protect people from this exact thing. To answer your actual question, I think these products are going to be done correctly, not done by Justin Sun. Who the fuck is that guy? I mean that's absurd. We're talking about improving... we're all human beings, we're tool builders, being human and living in this world and that's what separates us from primates. 100 years ago, the world sucked, today we're better, and 100 years from now we will be even better. Companies will start issuing regulated stablecoins and companies like Blockstream will deploy solutions that aren't as centralized, and then maybe with Human Rights Foundation these will all compete and be real solutions for people. This isn't like let's hop to the next scam before a16z comes and takes a big dump in our toilet or something.

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