Crypto 101: The Basics of Blockchain • Jamie Smith

White House deputy press secretary and former Bitfury exec Jamie Smith joins Niki Christoff in the studio to explain the basics of blockchain technology. She says it’s time for all of us to start paying attention to this space. And it's totally okay if you don’t understand it yet.

"I would say to tech companies who work in this space: it's time to be, you know, a full grownup. Avoiding Washington is not possible. It is not an option." -Jamie Smith

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Transcript

This transcript has been edited for clarity.

I’m Niki Christoff and welcome to Tech’ed Up.

Today we’re breaking down the basics of blockchain technology and cryptocurrency with former White House deputy press secretary Jamie Smith. She is a master communicator, and the chat should be accessible to everyone.

Even if you already know all about crypto...you’ve got laser eyes on your online avatar, you’re sure Bitcoin’s headed to the moon... this episode is worth a listen because Jamie explains how you should be explaining this technology to other people.

A note to our listeners: In this episode, I mispronounce the word “pseudonymous.” Which means using a false name. And I don’t want anyone else saying it wrong just because I did. 

Niki: Jamie Smith. 

Jamie: Hi!

Niki: Hi! Thank you for coming on this show. 

Jamie: I'm so delighted that you asked me. Thank you. I feel really honored. 

Niki: You're super busy. You have three kids, you're working full time, but you are uniquely positioned to talk to Washington about blockchain technology and Bitcoin and Cryptocurrency and all the things people are paying attention to because six years ago, you left the White House and went to work at a blockchain infrastructure company.

Jamie: Yes, I did. 

Niki: So right now everyone finally is paying attention. I know you've explained this stuff a million times, but I thought it would be helpful to just break down some of the basics.

Jamie: Yeah.

Niki: How do you think about this and then what's your advice on how to talk to regulators?

Jamie: Well, again, thank you so much for having me on. I think that it's really important first and foremost, for anybody who's listening right now to just accept the fact that this is all kind of weird.

Invite yourself to learn about it. It is totally okay that you don't understand it. I didn't understand it. I got a call from a couple of friends who worked at the White House Office of Technology Policy and they said, you should totally go and do this and when I told friends and colleagues that I was going to this startup, they thought I had lost my mind and to be sure I may have, but it was so fascinating. 

And what's fascinating about it is the whole idea of trust. I think if you think about it in the prism of trust, it starts to make a whole lot more sense. There's data all over the world and it's sitting in sort of repositories and it's really hard to guarantee that data remains secure or accurate. And so we're all questioning: is this information correct? 

And so along came this technology that is actually at its core, quite simple. It's basically taking all the data and putting it into a system where every time you put one piece of data on the system, it gets a token and that token can be monetized and it can have a value. So let's say that you have some piece of information, like, you know, the first tweet ever, right? And that can be put into a token and that token can have value because somebody wants to buy it. 

So it's a lot like a train track where if I put, you know, some information right here, on this car and I send it on the rails of the blockchain and I send it to you, it gets recorded. And so what you have is sort of an immutable ledger that cannot be changed. And if it is altered, it has to have a new token. And so we're all just looking for ways to keep information and data secure, but also to have some trust in what's in that data, if that makes some sense. 

Niki: It makes sense, but I think we should back up a smidge, even talking about distributed ledgers, immutable records. So. OK. We have known each other for a long time. In the summer of 2016, you had gone to work for a blockchain infrastructure company. You called me and invited me to Richard Branson's private island, as one does, and you did not have to ask me twice. It was a blockchain conference. I told everyone I was going to a bitcoin conference because I did not know the difference.

Jamie: They probably thought you were crazy too, right? 

Niki: Well, I think everyone thought if you get invited to Richard Branson's private island, you go, even if you have no idea why you're there.

Jamie: Yeah, just go.

Niki: Right? So I show up thinking I'm at a bitcoin conference and I discover upon arrival passing the lemurs that I'm at a blockchain conference. 

Jamie: Right, right. 

Niki: And what we were really talking about wasn't a cryptocurrency, it was the potential of blockchain technology. 

Jamie: Correct. 

Niki: And I know you just explained it, but can you...

Jamie: Absolutely. I think you have a choice is how I would say it. There are three categories. You can care about how the information is organized, which is blockchain. You can care about each little pinpoint on the blockchain, which is a token and therefore can have value. And therefore can be called a cryptocurrency or even care about both.

And so there were people at the conference who were invited because they care about the tokenization, the value of each pinpoint on the blockchain. And then there were people there who didn't know anything about any of this and what our goal was to bring together the brightest minds in technology.

And what we were hoping to do in this conference was ask all these smart people, and we're talking to people from all over the world who were just starting to get a sniff of this. What kind of solutions do you think we could bring to market that would actually make the world a better place? And so, you know, people define ‘better place’ in a lot of ways, but there were discussions about using it to secure rights to real estate. There were people talking about, you know, the diamond industry and being able to prove that they're not blood diamonds or people using it in the coffee industry.

I mean, think about all the different possibilities of being able to show the authenticity of a supply chain. And now, of course, we live in a world where the supply chain is so critical and Walmart to this day is using blockchain right now to track foreign meat that comes into the United States to show country of origin.

So there are lots of different ways that you can use any kind of blockchain. When I say immutable ledger, I mean like a real fancy Excel spreadsheet.

Niki: Yep. 

Jamie: And each time you move a piece of data, it doesn't just move on the sheet, but it gets a data point every time you do it. And each time you can't change that. So it's each time it's locked and every time it moves, it has a value.

Niki: And so even if the actors using the blockchain technology are pseudonymous or anonymous, and it depends on the particular blockchain, what that is. Everyone can see the ledger. 

Jamie: Everyone can see the ledger if it's a public blockchain. What we're essentially saying is: think about it as a massive apartment building. And every single time you add a new apartment, you need a new key. And each time, if you want to break into that apartment building, you have to have the key to every single apartment. Meanwhile, there are new apartments growing every single time.

So it's really hard to break in. It's not impossible, but think about how hard that would be. How much mathematical calculation you'd need to break into every single piece of the chain. So it's really pretty simple. It's just harder to break into something that has a thousand pieces versus something that has one.

And as people keep adding more data to the public blockchain, that's a massive apartment building. That's like breaking into every place in New York City. And so there's a lot of security there. The fact that it's so public. And people are just finding a tremendous amount of value in the tokenization of some of these assets. And they're bringing that to bear and the value has gone up significantly since we were on Necker Island. I remember talking to you about how that $500 price point was really a lot and so we didn't think we should buy it.

Niki: I know this is not a financial advice podcast because...

Jamie: Don't listen to us.

Niki: A gentleman at the conference offered to give me a bitcoin and set up a wallet for me. I think the price was about $500. 

Jamie: Yeah. 

Niki: And I said, I have too many apps on my phone, like pass. That was a $45,000 mistake.

Jamie: Yeah. 

Niki:  We thought it was too expensive. 

Jamie: Right. 

Niki: And I just want to back up also. So right now in Washington, and we're going to talk about this, how the industry is talking to Washington. But one of the things we talked about at that conference that I thought was fascinating was how other tokens and pieces of identity or assets that you want to have are permanently incorruptible, the ownership is clear. So examples were, there was a gentleman there from Haiti, which had many documents, paper documents destroyed, right?

Jamie: Yes, the former prime minister. 

Niki: And if the deed to your house, which by the way are still largely on paper...

Jamie: Throughout America and the rest of the world. Correct. 

Niki: So if that piece of paper is gone or you lose your birth certificate, it's gone. And so the idea is this is not only a permanent place, it can be stored, but that it can't be tampered with. Correct? 

Jamie: Correct. And so the beauty of that, if you think about it--we have a lot of security here in the United States. But in a lot of places in the world, it's not totally uncommon for somebody to go to somebody else’s house and say: this is my land.

Jamie: And then they can fight about it or there can be violence or there can be kind of terrible situations. And so being able to prove it really matters a lot. 

That's all the positive. The challenge of course is that technology is tricky. And if you have the wrong people at the helm who want to mess with the original, there's a lot of bad things that can happen there too.

We have to really look out for leaders who have a desire to create a new immutable ledger. And so I think that technology is not a perfect thing. So there are lots of ways this can help secure data, but it's really important that we keep our eye out and that's also why it's so critical that policymakers in Washington understand this technology because it can be used for good and it can be used for evil.

Niki: Perfect segue. I've heard you say in the past that you, Jamie Smith, cannot stop bad people from using technology. 

Jamie: No one can. 

Niki: We're in this moment in Washington where all the relevant federal agencies--and there are a lot because it's not clear who has oversight--

Jamie: Correct. 

Niki: They are paying a lot of attention moving quickly toward regulating, taxing. Specifically, they're looking at cryptocurrencies. We know this better than most people in Washington and every single day I find out something new that I did not understand.

And so one of the things I want to ask you about as someone who's worked in the White House, who's worked in the Senate: how should the industry be thinking about Washington? It seems like they're at loggerheads. Like the minute this started becoming a focus, a real hyper-focus of the federal government, it's already in this contentious space. And I'd love your perspective on how people sitting on Capitol Hill are thinking about this, how you would have thought about it, and then how the industry should approach it. 

Jamie: Well, that's the critical question. So thanks for asking. There's a long history as you know of tech companies being wary of Washington.

And that comes from not loving a lot of oversight but also being fairly irritated, understandably as a tech company, that a lot of people in Washington don't fully understand the tech. Frankly, it's kind of a pain to have to educate everybody. Washington doesn't particularly care about how blockchain technology is used at the moment.

And they're yielding to corporations who want to use that. It's the tokenization of the car on the rails. You know, talk about real estate. The first thing any human would do is attach money to this asset. That's just the first asset you'd think of.

And so when you start talking about money, you get a lot of people who care about that, and they’re definitely building the plane as they fly it. There are a lot of people in this town who know everything there is to know about the technology and then there's everybody else. And so I think that it's really important to think about it, both from the value of what the token stands for, right? But also thinking through the international aspect of this, and then the cybersecurity aspect of this, and those are all interconnected, but having an ability to really understand that this is bigger than just a dollar. 

This is a very large geopolitical issue. The sooner we can get policymakers and their staff to understand it, I think the better off our country will be. And our ability to stave off various threats that are coming in slower form, but that is significant. I would encourage people to ask themselves bigger questions: what are we actually talking about here? And why are people using technology to build a different kind of currency?

The faster we can get up to speed on that, I think the more security we're going to see in the United States and around the world. The thing that concerned me most back in 2015 is that here I am trying to understand this and you know, I would go to Beijing. I would go to Tokyo. I would go to Brussels. At that point, almost everyone I spoke to already understood it. And here we were like, what? 

I mean, it was like nothing. And that worries me. It worries me in any technology when it seems like US policymakers are a few steps behind. Since then, I've seen a lot of growth with the infrastructure bill, but we’ve got to get up to speed fast. And I think your jurisdiction point is critical because cybersecurity in general has no real jurisdiction. And so then you add on the financial side of cybersecurity and you just have a lot of cooks in the kitchen. So who's the decider? 

Niki: So just for people who are not Washington insiders, which we both are, we're swamp- dwellers. The infrastructure bill is a huge package sitting in front of Congress that attempts to tax cryptocurrency. And the difficult thing is that they sometimes don’t know the identity of the people being taxed. So it was, in my opinion, really rushed. There weren't all the stakeholders brought in to understand the practical aspects of taxing these currencies. 

Jamie: Correct. 

Niki: That said. And setting aside taxation for the moment, the role of the federal government is to protect investors, to protect Americans. And frankly, you know, maybe this is controversial, but the US dollar is the world's reserve currency and you are absolutely right: adversarial countries want to devalue it.

Jamie: Definitely. 

Niki: And so I think we should be rowing in the same direction and remembering that getting this right, especially for companies and entrepreneurs in the United States, is important because it's not going to go away. It's just going to go elsewhere.

Jamie: Absolutely. It's funny because all of these tech companies who I've had the pleasure of advising kept telling themselves that there's going to be a moment. There's going to be a moment where this is just going to become a thing.

And then all of a sudden, overnight it was just: boom! And so on one side, you have all of these policymakers and more critically their staff who have to learn this in six seconds. And who knows how they learned it, where they got the information. Let's just knock on wood that their learning was accurate. 

And then on the other side, you have all of these companies who are scrambling to find representation and to figure out if they can push back. And that's a scramble that frankly was unnecessary. I hope this is the beginning of more of a constant conversation between policymakers and the staff and frankly other targeted audiences.

So we can get to a place where we have thoughtful conversations about a really important technology. It's very critical. To kind of gut-punch everybody and say: we're just going to tax it. It felt a little bit abrupt. And now here we are. And even on the media side, you have a lot of reporters who were scrambling because they don't understand it.

Niki: Absolutely. I think that's right. I think that's actually a really good point. And this is the point of this show, which is: a lot of smart people don't understand the nuance. We're going to talk eventually in more detail about what it means, the goat rodeo of the federal agencies, and who runs what. We need to talk through the very real idea that there are bad actors. I really want to address how the industry is so far ahead of where the average person is and the average Capitol Hill staffer. And I thought it was a fad. I mean, obviously or I would've taken that guy’s Bitcoin 

Jamie: I wasn't sure. At the time it just felt like a crazy thing to do. And now we know it was a big deal. 

Niki: It is a big deal. The currency part of it is a big deal. The underlying blockchain technology is incredibly interesting to me. We take for granted that we live in a country where we can get access to a bank account. 

Jamie: Absolutely.

Niki: Right. We have so much oversight and there are billions of people living in completely broken financial systems. The idea of having an internet=enabled, trustworthy, currency makes sense. And I think these are all conversations we need to have. 

Jamie: Right. 

Niki: If you had one message for the industry regarding Washington, what should they be doing? 

Jamie: Simplifying. Make it simple. So a lot of policymakers are begging for companies to just keep it simple. Tell me exactly what I need to know. And then I promise you, I'll go back and read your 80-page white paper if I have to, but don't send me a white paper first.

Don't sit down with me and explain how. What I think every tech company does a little bit wrong is they are really interested in telling you how something works before they tell you why you should care. I know this is going to sound crazy, but I don't actually really care how my computer works. Sorry. I want to know that it can buy shoes and send them to my house, but I don't really care exactly how it works.

And so I think focusing on how it works is just not as important as why it actually matters. 

Niki: Right. I think that's absolutely right. Why does the technology matter and why should the United States care? Maybe I have Stockholm syndrome living in Washington. You do too. 

Jamie: I definitely have. 

Niki: These are public servants, right? Staffers serving on the Hill. You told me an amazing story about when you were working on agriculture. 

Jamie: So I was 22 years old and working for Congresswoman Loewy, who ended up being a chairwoman of appropriations. Serious member of Congress and I was at the low end of the totem pole. She's from New York, but the city really. And so I got agriculture and Homeland Security right after 9/11. And in walks these really serious people who all look like my dad who wanted to talk about the apple business. Apples and apples. And I realized at that moment, a really critical point about working in this town, which is that I would have rather eaten forks than admit to these people that I didn't know as much as I thought I knew about apples and my job at that moment was to pretend like I understood.

And I think it's so important that if you're going to work with policymakers in DC, they're not stupid by any stretch. Their staff is brilliant. It's just that they're so busy and they're never going to admit to you that they don't fully understand. So if you have a meeting and then they walk out and everybody's smiling and nodding, it doesn't mean they understood.

So spoon-feed it. Make it really simple. But also sound the alarm. I think that it is really important. My message to everybody is: this is a big deal. It's a very big deal. This technology matters. Love it or hate it. it is so much bigger from a national security perspective. And if we don't figure it out, I'm worried that there will be impacts on our society and the value of the dollar and other democratic societies. There is this kind of boiling underneath. So while I appreciate that somebody raised the idea of maybe taxing various assets. I think it's a little bit of a shiny object idea when there's like a whole other situation going on over here. The last message I would say to tech companies who work in this space is it's time to be a full grownup. Avoiding Washington is not possible. It is not an option. And you know, you have to be, you have to play, you have to play in this game.

Even though it's hard to figure out who's doing some bad things, it's not impossible. And so there are really remarkable people like Katie Haun, who I'm sure you're going to talk to at some point over at Coinbase, but she's one of the first people to ever solve a crime using the bitcoin blockchain. So it's really fascinating, but I think people need to really wake up. 

Niki: Yeah. So Katie was my roommate at the conference. She's the person who explained to me the difference between bitcoin and blockchain when I showed up at a conference I knew nothing about. This is a former federal prosecutor. Who had worked on the Silk Road prosecutions? I said like, what even is this? and can you just let me break this down? 

And so here we are six years later. The world has continued to pace. There are public blockchains and private blockchains. There are better actors and worse actors. But in Washington, I absolutely take your point. And then I think my advice to a staffer would be: if you don't get it, ask somebody.

Jamie: You reach a point in your career where you don't care about admitting you don't know. The more people can admit they don't know the quicker we're going to get up to speed about what the real threats and opportunities are. 

Niki: Thank you so much for coming on. You and I are both at a point in our career where we feel very confident when we don't understand something, just saying: I don't get it.

Jamie: Explain that to me. 

Niki: I got closer to this space because I have a client that's a DeFi company and they were talking about how they're organized as a permissionless holacracy, which is not the topic of today's podcast, but I was like, I have no idea. 

Jamie: What are you saying to me? 

Niki: And if I don't know, a lot of people don't know. So you're a perfect guest to introduce us to the idea of bitcoin, blockchain, cryptocurrency, and how Washington and staffers here should be thinking about it. 

Jamie: Thank you. I mean, look, I have three kids under the age of eight and all I can say is whenever they ask me what I do for a living, I always say I take complicated things and I try to make them make sense to people.

There's zero value in policymakers, their staff, and the media not understanding this. It is only a hurdle to progress. If companies out there would like Washington to do what’s in their favor then educating them would be really helpful. Otherwise, they're just going to educate themselves and that may be correct, or it may not.

And so the more there can be this inner exchange of information, the closer we're going to get to solving what is, in my opinion, the much larger issue, which is the national security side. 

Niki: Awesome. Thank you for coming on. 

Jamie: Thank you for having me. Thank you.