Building Bitcoin as Sound Money with Dan Held of Kraken

In November 2021, Bitcoin reached an all-time high of over $60,000. Trade-offs must be made to achieve the proper level of adoption and enduring decentralization, so this could be a critical time in its history.


Dan Held emphasizes that whilst Bitcoin lacks the "cool" utility of other protocols, it has a strong foundation that could potentially support Defi use cases in the future. The exciting relationship between philosophy, price, and utility is resulting in a cohesive ideology about what Bitcoin is and how it may evolve.


Bitcoin Defi promises to usher in fascinating use cases… but over what timeframe?


Joining us this week to explore this topic is Dan Held, Director of Growth Marketing at Kraken. His former company Interchange, a portfolio reconciliation tool for crypto institutional traders, was acquired by Kraken in 2019. Prior to that, Dan worked on rider growth at Uber. Before Uber, Dan built some of the most popular early crypto products including ChangeTip (acquired by Airbnb), and ZeroBlock (acquired by Blockchain.com in the second-ever all-Bitcoin acquisition). He was part of the original 2013 crypto meetup group in SF which was composed of the founders of Kraken, Coinbase, Litecoin, and others.

Jeremy Allaire: Hello and welcome to The Money Movement. We are recording here at Consensus 2022 in Austin, Texas. 17,000 people, amazing people, getting together. I guess I can sort of say post-pandemic. Not sure what that means. I'm happy to have that and very happy to have Dan Held with Kraken, one of the most thoughtful writers, thinkers, and I think people working in the Bitcoin space, crypto broadly, but you've been incredibly outspoken in Bitcoin. Welcome to the show.

Dan Held: Thanks, Jeremy. Appreciate you are having me.

Jeremy Allaire: Absolutely. There's a ton we could talk about, obviously. Maybe if you're okay, just doing a little bit of origin story for the listeners, just your journey down the rabbit hole. Just when, where, how, and we're going to zoom around a little bit from there.

Dan Held: Sounds good. I was in school during the 2008 financial crisis, studying finance as an undergrad. I realized that the books that I was reading were wrong, professors were wrong, and everyone on TV was wrong. I started to question the nature of my reality a little bit. Do the institutions and leaders in charge of our financial system actually know what they're doing? I was already disillusioned with our leadership in the financial system. A couple of years later, I discovered Bitcoin. I'm not going to say I got it right away. I don't think anyone does. I think it takes a while to really dig in.

I'm still learning things about Bitcoin. I started to read about Bitcoin and learned about the monetary policy, the 21 million hard cap. To me, that was a brilliant, brilliant breakthrough. It demonstrated that you could build a monetary policy where you never have inflation and that inflation is always a source of political turmoil, where we can debate on if 2% or 5% is the appropriate rate of inflation, so it constantly opens up the money to an attack vector of politics. I thought that was brilliant, and also Silk Road was, I think, a testament to bitcoin's resiliency.

I didn't know how Bitcoin works on a proof of work level, like how Bitcoin mining worked or how the network worked, but I was like, "If people can buy things that are illegal, it's probably doing something right." It's got the immutable characteristic to it.

Jeremy Allaire: It's a bearer instrument, right?

Dan Held: Exactly. It was a demonstration that it was immutable or censorship-resistant, which was really cool. Then I started buying in 2012. Then I didn't have a ton of money. I was 24. I definitely wish I was 10 years older, where I had a little bit more discretionary income. Then I moved to San Francisco. I worked at a finance, a small firm in Dallas. They moved me out to San Francisco. There I got involved in the Bitcoin meetup team. This was Jered Kenna, Jesse Powell from Kraken, Brian, and Fred. Did you ever go to one of those?

Jeremy Allaire: Yes, I came out to a couple of events out there. Who was it, who had the house?

Dan Held: Jeremy Gardner.

Jeremy Allaire: Yes. Jeremy Gardner.

Dan Held: The Crypto Castle.

Jeremy Allaire: The Crypto Castle. There were several of these startups who were all basically there.

Dan Held: Totally. You had 20 Mission. You had Crypto Castle. These were communities that were built around different crypto assets. It was funny because January 2013, there was only a dozen people. In fact, if you go to the meetup invite and go back and scroll, you can see that there's only a dozen people that RSVPed. Then march 2013 hit, and there's this huge bubble from Bitcoin went from $10 to $260. There's a huge wave of excitement. VCs were literally handing out business cards. I remember Lightspeed was there. They were literally handing out business cards. There was a 150 people at the meetup. That's the moment when I decided to build my first product, ZeroBlock. I don't know if you remember ZeroBlock?

Jeremy Allaire: Absolutely.

Dan Held: For folks who were watching, it was one of those popular mobile apps back in 2013, which back in that day, you didn't really have to build something sophisticated because there weren't that many people building products. It was very basic. It was a price tracker product. That got bought by blockchain.com. That kickstarted my career in tech. Built some early products in crypto, worked at a couple of other crypto companies to zoom forward a little bit. Then my last company I created was called Interchange, and we got bought by Kraken. Then at Kraken, I built out the embryo or the origins of the marketing organization, and then later on with the growth marketing team.

Jeremy Allaire: You've been in it all along, every facet.

Dan Held: So true.

Jeremy Allaire: I discovered Bitcoin in 2012. It did take me a little while, but it's actually very interesting because, I had originally studied political economy when I got into a tech career, building internet platforms, other things. Then after the financial crisis, I similarly was like, "What the fuck is going on here?"

Dan Held: Totally.

Jeremy Allaire: I started to become an armchair monetary historian. This is in 2009, 2010. I was just finding these are the books I want to read. History of money, central banking, like just learning more about the international monetary system, these other things. I was convinced like, "There had to be some kind of change on a global scale." There had to be, but it was unclear what it would have to be in. I then finally got interested. It's fascinating actually, thinking back to the early 2013 days. There were projects like Counterparty was one back then, which was actually, I believe, one of the first potential mechanisms to do what would be smart contracts or tokens or other things.

Dan Held: You remember colored coins?

Jeremy Allaire: Colored coins very much as well. In the early white papers, if you want to call them that, for Circle, we were very focused on the ability to issue assets on top of Bitcoin. Really, my background was originally in working on web programming languages and eventually worked on different types of virtual machines and infrastructure. I was really intrigued by the idea of expanding script to do more. Back in early 2013, people were writing about, talking about these ideas. We just assumed, "That's going to happen. That you're going to be able to do that, and once you're going to be able to do that, you're going to be able to build layers of protocols. You're going to be able to do things like abstract away existing assets and put them onto these networks."

Dan Held: There was more of a builder mindset in Bitcoin back then.

Jeremy Allaire: There was.

Dan Held: Everyone was building their own either CeFi or DeFi sort of application or wanting to experiment with colored coins. People forget that the first NFTs were on Bitcoin, on Counterparty, where [unintelligible 00:06:29].

Jeremy Allaire: Exactly.

Dan Held: The early Bitcoin community was very oriented around experimentation and building.

Jeremy Allaire: It's fascinating because I think, well, there's a lot to think about here. There was obviously this period of time when there was a focus on just like keeping Bitcoin what Bitcoin is. Don't try and have it be something else.

Dan Held: There was a cultural elements around Bitcoin that were developed somewhat later, like, Saifedean's book, The Bitcoin Standard, and the meet culture and stuff. Back in '13, there wasn't any of that cultural stuff.

Jeremy Allaire: It's interesting to see just also that politics is the wrong word, but the core Devs and who's really in control of the GitHub repos and these expressions of ideology through, I don't know if it what the BIP was, but it was essentially a merchant payment protocol. BitPay had contributed that, and Gavin Andresen, as well. It was in the bitcoin.org release. It was a standard for how you do a merchant payment, but that was ultimately discarded, basically. There was a sense of like, "No, we're not going to stuff all this stuff into Bitcoin. We need to keep Bitcoin simple."

Dan Held: Which in retrospect, I think they were right. When it comes to a lot of the decision-making, this is a rocket ship. The Bitcoin protocol is like a rocket ship. If you make an error and it breaks, it's like a rocket. There's a 0.01% error that can lead to a catastrophic failure, the rocket explodes. Bitcoin on its trajectory as a new money has made its way to the atmosphere. We passed the hardest test so far, made it out of the atmosphere, and we're on our way. We already went past the moon for $30,000 a Bitcoin. Think when you and I first got into it, $30,000 a bitcoin is unfathomable that we would have achieved that, or it would have been that successful.

This conference has more people than the entire crypto ecosystem had five years ago in terms of how many people were working in the crypto industry. With that analogy, we've already gone past the moon, and we're on our way to Mars. That's an incredibly delicate period of a new crypto protocol to go through that period. The core Devs, I see them, they're tinkering on the rocket as it's going. You have to make very, very careful decisions. In retrospect, it made sense. If you try to jam all these things into Bitcoin, you have to trade off something. The trade-off usually is censorship, resistance, or decentralization to some degree.

My simple analogy for Bitcoin versus Etherium, or Bitcoin versus other protocols, is Bitcoin rejects all the fun, cool stuff to just be as decentralized and as good of a money as possible. We don't know what the appropriate level of decentralization is until there's a nation state attack moment.

Jeremy Allaire: That's the threshold is the nation state attack vector.

Dan Held: Bitcoiners were like, "Well, we're going to optimize everything for that event." Bitcoiners could be wrong. This is where I like to look at my own beliefs to try to pull them apart sometimes, where we could have over-optimized for security. Maybe at the end of the day, they don't ever attacks these protocols to that degree, but I do believe that their hypothesis is likely correct, that eventually money starts to challenge the legitimacy of the state. When that happens, you have to have a money as decentralized as possible. The devs I think rightfully rejected some of these things you could do on top of Bitcoin because it would introduce a lot of change, and that change leads to risk, and that risk could have had the rocket blow up.

Jeremy Allaire: It's fascinating. I think it's clearly these were good decisions for preserving that, and it's obviously created opportunities for other protocols and there's been huge advancements in developments and other things that have been made possible. It's a vibrant space. It's an exciting space, but coming back to building on Bitcoin, this thesis where in some ways there was a lot of experimentation with that. Then its attention got diverted and it was all about building on Ethereum or whatever, but it seems like there's more attention coming back to building on Bitcoin.

I think it's because as the underlying decentralization, the underlying consensus model, the underlying fundamental security assurances that you have from Bitcoin are just phenomenal. That's there, and so you can't shake a stick at that.

Dan Held: If you get the stable foundation, you want to build on something like that.

Jeremy Allaire: Now it's, like you said, it's achieved a certain thing. Now it's like, how do you carefully do that? Obviously, there've been many years in development, incremental primitives that have been added, like tap root, which is a significant one. We're now starting to see people trying to build on that, to start unlocking new things. It's very gradual, but maybe just talk a little bit in your mind about the building on Bitcoin thesis today.

Dan Held: I think building on Bitcoin or Bitcoin DeFi, right now, if you were to look at like Google search trends, it probably is barely a blip. With crypto, our job is to predict what might happen. Our businesses depend on that. I do think Bitcoin DeFi could be one of those really powerful narratives and new we have a whole sweeping thing of NFTs or DeFi. I think Bitcoin DeFi could be an entirely new movement where a lot of that excitement around DeFi comes back to Bitcoin. Going back to the old, the Bitcoin's lineage, as having primitive DeFi it had rare PEPs. It also had people forget about joint market. Joint market, as a way to earn yield on your Bitcoin in a trustless manner.

You mix your coins with someone else and they pay for that privilege as a maker, a maker of liquidity. That's existed on Bitcoin for seven years but people don't think about this stuff, or the interfaces are really hard to use. I think with the right amount of attention, and when you build on top of Bitcoin, you don't have all the cool stuff that some of these other protocols have. You have to be a little bit more precise. There's like Lightning, for example, I would consider a smart contract or DeFi. I would consider Lightning to be a DeFi. Also with Taro on Lightning, they're introducing stable coins, which is really cool.

Jeremy Allaire: They issue a token and transact it.

Dan Held: Which is really cool too, because you're not transacting on the Bitcoin base layer. You're not subjected to that fee pressure that occurs during when demand for block space increases dramatically. Do you really want to spend $100 to move an image to move a JPEG or to move another type of asset?

Jeremy Allaire: It is a really interesting paradigm shift in that. The collateralization that's needed for these channels on Lightning, if it's collateralization that's really associated with paying the cost of the underlying Bitcoin transactions that are carrying this huge number of Tokens that could be USBC or could be whatever. It changes the adoption paradigm even of Lightning itself but we're really excited about that. I think we're really excited about the potential of USDC for Bitcoin. I think just looking at these technological developments, a lot of things are actually coming together to make some of these things possible.

Dan Held: Bitcoin moves a little slower. The other protocols make lots of changes very quickly to allow you to do the fun, cool stuff. The Bitcoin engineers on the rocket like to make little changes. Over a long period of time, we can start to do more of those cool things. It just has to be done in a very, very precise manner. That's where the Lightning being developed and adopted. I think has been a huge win for Bitcoin DeFi. We've also got RSK. RSK's been around a long time, but they never got developer interest though. I think that's where Lightning stands apart from RSK, they've gotten developer interest.

Same with like Stacks, I think. I think Stacks as well has gotten developer interest and people excited and they have a community. Of course, they have a token to which, depending on how Bitcoin or you are or not, some people don't like that and some people do like that. I think I'm more of a Bitcoin moderate these days, where I love Bitcoin. That's why I'm here. That's my mission. It's the success of Bitcoin, I think, is paramount for our freedom. That's something I want to work the rest of my life on. Now, when it comes to people building these projects, some of them aren't necessarily trying to be money. They're more of crypto equity, and so these Tokens are in alignment of incentives.

Jeremy Allaire: It's a different digital commodity.

Dan Held: Totally.

Jeremy Allaire: Look, there's a huge spectrum of tokenized mechanisms and it's a new creative surface, new creative tool that we have for organizing a lot of things. Every digital token is not trying to be a reserve currency.

Dan Held: That's where the Bitcoiners, I think, get a little bit too intense with that, where it's like, no, they're not competing with Bitcoin. They're trying to do crypto equity in a way, like Tokens to represent ownership in an enterprise, like Dows and stuff like that. Which I think is a really interesting thing. Dows, by the way, we're written about on Bitcoin Talk, did you ever go on Bitcoin Talk?

Jeremy Allaire: Absolutely. Yes.

Dan Held: People forget that Twitter is where the conversation happens now or discord.

Jeremy Allaire: It was all Bitcoin talk.

Dan Held: It is all Bitcoin talk.

Jeremy Allaire: And reddit for a while as well.

Dan Held: There's the Bitcoin talker and then we had the Reddit era and then Twitter. I actually like Twitter the most because it's more open. There's a lot of conversations that can happen.

Jeremy Allaire: Better UX.

Dan Held: It's a lot better UX than Bitcoin talk. It's interesting to see. Dows, I read about those for the first time on Bitcoin talk. Where they were thinking a fully autonomous corporation. Which was a pretty cool idea. I like that spirit of what the other crypto projects are doing because they're all, I think, very excited to look at how Tokens can align incentives. That's where I'm more of a moderate Bitcoin moderate where I'm like, for example, Stacks wants to use Tokens to align incentives and build on top of Bitcoin while also having their own version of a gas token. Let's see how the experiment plays out.

With Bitcoin DeFi, I think Stacks and Lightning probably had the two most, I would say the two biggest developer communities and also interest. You've got other stuff like DLCs, which is cool too. Discreet log contracts where atomic finance is building Bitcoin options using DLCs. That's pretty cool. That level of sophistication is really interesting, but Bitcoin's never going to have like the composability of Ethereum or Salona. When we think about DeFi, we're product guys, so when we build a product we solve a problem for a certain niche. If we look at DeFi there's only so many activities that people do typically, right?

You're typically collateralized lending or borrowing. Where I'm borrowing dollars against my ETH and I post 100K in ETH and I borrow 50K in USD or SDC. If we can take some of those use cases of DeFi that are most popular and bring those to Bitcoin, Bitcoin doesn't necessarily have to do everything these other protocols can do. If it just value captures the most popular DeFi use cases, I think that's a pretty good start.

Jeremy Allaire: I think the ability to borrow and lend and have also Fiat-pegged assets and to have borrowing lending on underlying Bitcoin native assets and have a decentralized exchange that works entirely native to the Bitcoin architecture, all of those are I think really compelling.

Dan Held: Not to focus too much on Circle, but I think Circle is in a really cool spot with USTC. Stable coins represent a huge portion of crypto-economic activity. I'd say there's a lot of Bitcoiners like Nick Carter, Alice Gladstein, who love Stable coins because it not only helps out people in different countries that don't have access to a financial system but you know what? I think sometimes Bitcoin is too big of a leap for people to mentally make. A Stable coin is a good, I think intermediary.

Jeremy Allaire: I think that's very, very much our view, which is you have this digital commodity money, non-sovereign digital commodity money. We'll continue to see the monetary base of that grow and over a very long period of time. I think it ultimately can be a stable unit of account in a lot of ways. Then you have these existing, widely accepted units of account, and also relatively speaking price stable, and obviously in the existing world of commercial contracts and other things are super useful. I think they're quite complimentary actually.

Dan Held: Totally.

Jeremy Allaire: I know there are people who are like, "We're trying to end the dollar," or whatever. I think these are complimentary and, even in the existing historical Fiat money system, obviously, they were dollar to gold pegged or whatever it was. There was always that interplay between the commodity money and a domain-specific unit of account. We'll see exactly how it evolves, but there seems like there's going to continue to be that interplay over time.

Dan Held: Even if Bitcoin does win and that's all we use, it's going to be probably we might you and I might not be alive by then. It's going to be a long time.

Jeremy Allaire: I remember actually, and I was having this conversation with someone else, in the period of time when there's a lot of ideological debate about the block size, debate time in the history of Bitcoin and Bitcoin core, very focused on preserving this store of value that doesn't need to be this high transaction volume thing. It doesn't need to have all these other bells and whistles or whatever, but it keep that focus. It felt like there was a real thesis that is a worthy pursuit and it might be 30 years or 50 years or something until you get to a monetary base where you would have it as a really compelling day to day unit of account. I don't know what that timeframe is. Things happen fast on the internet, who knows?

Dan Held: I hope to see it before the end of our lives but it could take a while.

Jeremy Allaire: You could take a life extension.

Dan Held: To life extension stuff to?

Jeremy Allaire: We'll see.

Dan Held: I'm getting cryo-preserved when I die. Frozen when I die, which Hal Finney did that.

Jeremy Allaire: I am very aware. Absolutely. There's some fascinating things around that. I think there is that interplay, and again, having these financial primitives native to the underlying infrastructure and security and other of Bitcoin is very compelling. We're seeing projects like TBD from Block. Trying to do decentralized exchange that can in fact be Bitcoin native and creating a [unintelligible 00:21:13] model that works that way. If that can be realized that could be quite a significant piece of infrastructure for a lot of other things as well. I think if you listen to the Block team talk there's this huge interest in how Stablecoin can interact with that and Stablecoin can interact with Bitcoin. I think there's something very powerful possible there.

Dan Held: Totally. Well, that's cool. You guys were talking, I didn't know that you guys were jamming with them on Dexus because I think everyone is watching.

Jeremy Allaire: I was looking at the public work that they're doing and they're publishing more and more on GitHub and I think plugging away and making progress.

Dan Held: I think Square has such an incredible focus on Bitcoin. What I've learned in my experience in 10 years in the crypto space is that there's this reflexivity with narratives and building. Since there's tokens or Bitcoin is a token, there's this reflexivity with it. As the price goes, higher, people become aware of it. Then they buy in anticipation of it going higher. It's actually almost verbatim of what Satoshi said before Bitcoin was worth a penny, he hypothesized that this would be the organic viral loop that would pull more and more people in. There's this interplay between a story and price and usage, it's all intertwined. That's where I think Bitcoin DeFi with, TBD, Stacks, Lightning. Lightning was one of the first ones to really get a lot of narrative and story around it that then got developer interest, that then built applications to go satisfy that demand in the market, that then got funded by VCs.

I think Bitcoin DeFi will have this reflexivity, whereas more and more projects resemble what we've been talking about or we see USDC come to Bitcoin. We see maybe Daks begin. These narratives start to become reflexive and there'll be more money poured in and more developer interest. I don't really see a negative situation with this occurring where Bitcoin itself doesn't change, which is great. We want it to be unchanging. We don't want to add any bells or whistles that might cause that rocket to explode. All this developer interest could bring a lot of a DeFi interest and the rest of the crypto space back to Bitcoin, which I think would be super interesting to see.

Jeremy Allaire: It's also fascinating to see how you've never had a situation, certainly in the financial system, where end users in the financial system are so passionate and care so much about fundamental philosophical ideas, core principles. I think in some ways some of those things are embedded deeply in society. Cash is king, and that's a phrase that people understand or whatnot. If you go around the world, the bearer asset money is people very intuitively understand that is different than someone writing you a check or whatever the metaphor is.

It's interesting, just tied to this theme of if some of these Bitcoin DeFi primitives get built that this really broad base of people, users, will say, "I want to use that because I understand philosophically that that's safer in some way or that preserves the underlying decentralization. That's important to me." It's this interesting mix of utility and philosophy that's happening that comes down to the user level. You don't see that in a lot of sectors.

Dan Held: We don't see someone down the street shouting, "Check out the US dollar. It's a great mechanism." Most people don't know how they're monetary.

Jeremy Allaire: Or people like pondering, "What is my Venmo balance? Whose liability is that?"

Dan Held: "How does Venmo work?" They just press buttons.

Jeremy Allaire: It's interesting. Then obviously solving the UX problem and making these application layer things really work more. I know that's something you're passionate about too.

Dan Held: Of course. I think if we froze all of the tech currently in crypto we could spend the next 30 years just building better user interfaces. The usability of crypto is horrible.

Jeremy Allaire: It reminds me of early days on the internet and reminds me of the dial up internet phase and what that was and all the stuff you configure in your computer and things you needed to know.

Dan Held: This one comes with a little bit more consequences. You could lose all your money.

Jeremy Allaire: Versus losing email or whatever.

Dan Held: Exactly. I do think there's a lot of, I know that Square is building their own hardware wallet that's focused on usability ledger, of course. They're one of the largest hardware wallets out there. They've got some cool stuff in the pipeline that they told me about. For me it's always a passion. In coin joins, by the way, join market, someone, it's called Jam. This group is building the interface. That makes it usable. because right now it's command line. Which if it's command line people aren't going to use it. Or maybe part of it's command line and there is a gooey.

Jeremy Allaire: You need to have optionality.

Dan. Held: People forget that Bit 39, the 12 to 24 backup, that didn't exist until 2014. Back then you'd have, when you printed out your private key-

Jeremy Allaire: I found some money on some of those.

Dan Held: Nice. I think every old Bitcoiner goes through in the bull run. You go through, dig through your old files to go see your wallet dat file. I actually had that happen. I was going through my old files. I found a wallet dat file. Then I'm like, "There's no way I remember the password." I'm like, "Let me try some old ones I used to use." This was a really old wallet. I wasn't really smart with my security back then. I tried and it works. I'm like, "Oh shit." I had access to it. It's a zero balance. Then I look at the transaction log and there's like 100 Bitcoin, 100 Bitcoin, 100 Bitcoin. I'm like, oh man, I was buying like alpaca socks and shit. There's just pain.

Jeremy Allaire: Absolutely. Totally. Well, it's interesting. I think just back on this theme of building a Bitcoin and Bitcoin DeFi. A lot of these printers, we really are getting to a new place and be excited to see where your work takes you as you think about this more too.

Dan Held: Yes. I'm really excited to see what you guys do. I think stable coin's outside of like Bitcoin's core store value use case. Stable coins are a huge use case in this space. Really excited to see where you guys plug in the Bitcoin DeFi ecosystem. I'll be having some more public announcements around things that I'm working on in the Bitcoin DeFi-space. For those watching, you might have already heard about that or you might be hearing about it, but I think there's a lot of cool things to be built. That's going to be my focus over the next couple of years.

Jeremy Allaire: Awesome. Can't wait to see it all Dan. Thank you.
Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Dan Held
Director of Growth Marketing at Kraken

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