Dragonfly Capital’s Haseeb Qureshi thinks there are five problem areas in crypto that you can make a fortune in solving. Those are identity, scalability, privacy, interoperability and UX (user experience).
A former poker player turned venture capitalist and philanthropist, Qureshi looks to blockchain as both a source of revenue and social good.
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“The most important thing about crypto is permissionless innovation,” he said. “That’s the idea that you do not need to get a license or a business plan approved. You can just deploy a contract on-chain and it starts getting users.”
And so, Qureshi says, even if crypto has problems, it might prove its utility by allowing anyone to innovate.
At Consensus 2022 in Austin, Texas, CoinDesk asked Qureshi to explain crypto’s growing pains, and how he thinks about its longstanding issues. Here’s what he said (the transcript has been lightly edited for clarity and brevity):
When you think about privacy, everything you do in DeFi [decentralized finance] is viewable. We've gotten used to that in crypto, but that's not the way of the future. There will be some trade-off that we can make that is going to be similar to the kind of privacy we expect in the real world that would still give us the auditability that we care about and that makes DeFi, DeFi.
Right now, you're extremely aware of what chain you're on. You know if you’re on Solana or Avalanche or Ethereum. At some point in the future, almost without a doubt, you will have digital assets and you will interact with applications – and that will be your relationship with [the blockchain].
On the internet, you don't interact with this service or that service. You don't interact with Cloudflare, and you certainly don't give a s**t about TCP/IP. Your allegiance is to your application. So in the future, if you want to do yield aggregation, instead of just looking at Yearn, you’ll look at what's the best yield anywhere in crypto. It will just be like calling out to another server on the internet.
The fastest blockchains do fewer than, like, 1,000 TPS [transactions per second] each. You can argue about the margin there, but the bottom line is that none of them do that much throughput today. And for us to really get to world scale, all blockchains need to be much faster, much more scalable and have a much higher throughput. That applies to rollups and the like, too.
You want to get to not just tens of millions of users but hundreds of millions of users. Further, we talk a lot about users but we don't talk much about access patterns. If you want access patterns that look anything like what people do in Web 2, you need much, much, much more scalability.
You could argue that bitcoin is the most used cryptocurrency because it has the most holders. I don't know the exact numbers, but something like 50% of Americans own crypto. I’d guess more than half [of those] only own bitcoin. And maybe there's one transaction those people, who likely bought BTC on an exchange, actually settle on-chain, if that, per year. If that's the case, the access pattern of someone using bitcoin is that one transaction.
But what's the access patterns of someone using the internet? I don’t know how many Google searches I make per day. So a Web 3 user is gonna result in many transactions per day.
The issue here is having an online identity that can be relied upon. Let's say I want to offer you credit – credit is about your identity, about who you are but also about my recourse. I can only offer you credit if I know that I have a path toward getting it back. If I don’t know who you are and you run away, I'm underwater immediately. There's no recourse.
Related here is bankruptcy. That’s a punishment that survives you and our relationship if you default on the debt. Bankruptcy is one of the most important innovations that we have made in capital markets. It’s very underappreciated in crypto. It’s the way you protect your remaining assets if you cannot pay back all your creditors and how credits can punish you into the future. You cannot do credit without the concept of bankruptcy. But in order to have that, you need Identity. Identity that persists.
Identity is also important for things like marketing. People don't think about this very often, but when you sign up for Coinbase, they can tell whether you're institution or retail. If you’re retail, they throw a bunch of incentives and charge you an arm and a leg for every transaction. If you're an institution, they don’t have to pay anything to get on board, but they charge you BIPs [bitcoin improvement proposals] because you're price-sensitive. Brokerages make all their money from retail.
In DeFi, I can't tell whether you are retail or whether you are Jump [Crypto, the digital asset wing of the eponymous hedge fund]. The protocol treats everyone the same. A centralized exchange’s margin would f**king collapse. Imagine how much money could be made if DeFi businesses could know who their customers are. Nobody can do it today because there's no notion of identity.
We're investing in a company called Quadrata that allows you to selectively disclose parts of your KYC [know-your-customer] background. So you can selectively disclose your country or other parameters about yourself that you might want to prove to an application or business. This means you could KYC to receive an incentive, but may not have to.
MetaMask, for instance, is not the most user-friendly way to transact. We've already seen some wallets start to do it much better, like Solana’s Phantom – great wallet experience. Keplr – great wallets. We've been able to learn from mistakes, and I think we're going to see more and more innovation.
UPDATE (JUNE 16, 2022): Corrects spelling of Quadrata.
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