Original: Raoul Pal
Compiled by: Yuliya, PANews
In today's rapidly evolving cryptocurrency and blockchain technology landscape, Barry Silbert, founder and CEO of DCG (Digital Currency Group), is undoubtedly a pioneering figure in the industry. In a recent podcast interview with Raoul Pal, Barry shared his journey from an early Bitcoin investor to building DCG and its subsidiaries (such as Grayscale and Foundry), experiencing the market's bull and bear cycles, including the cryptocurrency crash of 2022.
Now, Barry is setting his sights on the next major bet—Bittensor. He elaborated on his role as the founder and CEO of Yuma, and how Bittensor could potentially become a more transformative decentralized intelligent network layer than Bitcoin. This article will delve into Barry's experiences, the development of DCG, the 2022 crisis, and his outlook on Bittensor and the future of AI. PANews has compiled a written summary of this podcast episode.
Bitcoin Enlightenment Journey
Q: Barry, can you share how you transitioned from Wall Street to Bitcoin?
Barry: I initially worked as an investment banker, but I realized the need to create something new, so I founded the first private stock and illiquid asset trading market, Second Market. This platform played a significant role during the 2008 credit crisis when many companies like Facebook and Twitter could not raise funds through the IPO market, and Second Market became an important channel for trading their stocks.
In 2011, I first encountered Bitcoin through a Wired article and Jason Calacanis's podcast. At that time, I still thought the effects of the credit crisis had not yet faded, so I remained cautious. I spent six months researching Bitcoin, reading extensively and talking to industry insiders. By early 2012, I realized that Bitcoin could have a profound impact on the world and decided to get involved to avoid future regret.
Q: What price did you initially buy Bitcoin at?
Barry: I bought hundreds of thousands of dollars worth of Bitcoin through the Mt. Gox platform at around $7-8. The price once surged to $30 and then dropped to $5, and in the following 6-12 months, it began to rise again to $50, $60, and $70. So I started looking for companies building Bitcoin infrastructure to invest in, such as early investments in Coinbase, Chainalysis, Ripple, and other first-generation infrastructure companies.
Interestingly, I actually made these investments using Bitcoin. If I had just held onto those Bitcoins instead of investing in these companies, I would have achieved better returns. We early Bitcoin holders all have similar stories—back in 2013, my wife and I had our first daughter, and we were both trying to get people to use Bitcoin. I remember using Bitcoin worth $2,000-$5,000 to buy gift cards, mainly for diapers. I never went back to calculate how much that money is worth now, but it’s safe to say that the Bitcoin I spent in 2013 is now worth an astonishing amount.
The Rise of an Empire: The Birth of Grayscale and DCG
Q: How did Grayscale and DCG come into existence?
Barry: At that time, I was running Second Market, and I told the board (including Chamath Palihapitiya) that I thought we should do something significant in the Bitcoin space. We had tens of thousands of sophisticated investors looking for interesting non-mainstream investments. I understood the history of gold and gold investment and knew that gold ETFs were the catalyst that made gold an accessible and legitimate asset class.
I decided to create a Bitcoin version similar to the SPDR Gold ETF. We contacted the SEC, but they knew nothing about Bitcoin. We quickly realized that the SEC would not allow a Bitcoin ETF in 2013, so we did something groundbreaking—we launched it as a private tool and then traded it publicly on the OTC QX market, which became the Grayscale Bitcoin Trust.
Since we purchased a large amount of Bitcoin, we also built a Bitcoin trading platform, began buying Bitcoin ourselves, and invested from our balance sheet. Eventually, in 2014, Nasdaq called and said they wanted to acquire Second Market, so I sold Second Market to Nasdaq and fully committed to Bitcoin. Bitcoin products became Grayscale, the trading business became Genesis, and the portfolio became DCG.
Q: How much assets does Grayscale manage now?
Barry: I think it’s around $30 billion by the end of the year. Grayscale, as a pioneer, has been highly innovative in product design, making this asset class more accessible to the mainstream market, although many investors still find it difficult to participate conveniently.
Grayscale now has over 30 different products, including Bitcoin trusts, Bitcoin mini, large-cap trusts (code GDLC), and single-token trusts. The Grayscale model is to open up these tokens to a broader range of investors, transforming them from private trusts into publicly traded trusts.
I like to think of Grayscale as the next Vanguard Group. Just as Vanguard pioneered index investing and PIMCO pioneered bond investing, Grayscale is pioneering crypto investing.
Q: What is DCG's investment strategy?
Barry: We talk about what we call the "DCG playbook." We identify protocols and tokens that we believe have the potential to change the world, and then we bring our capabilities to these ecosystems: we invest, build, buy, educate, and create access opportunities. This doesn’t happen often; I do it about once every five years, but when we do, we are very successful.
The uniqueness of the DCG model is that we are a private company rather than a fund. As a private company rather than a fund, I have the luxury of permanent capital and time. We can make investment decisions and capital allocation decisions, and I have this interesting job of trying to foresee the world 5 or 10 years down the line and place bets. I will be wrong more often than right, but when I am right, the rewards are enormous.
Q: How did DCG grow into such a large enterprise?
Barry: We are in a unique position to be the bridge between this asset class and traditional investment markets. Over the next five years, we launched Foundry, which is now the largest Bitcoin mining pool in the world. Before Foundry, there was virtually no Bitcoin mining activity in the U.S., while China controlled about 80% of the hash rate.
We decided to bring Bitcoin mining to the U.S. by providing funding to American miners, purchasing large amounts of equipment from manufacturers, and then financing these miners to help them get started. As part of this, we built this mining pool, and now one-third of Bitcoin transactions are processed through the Foundry USA mining pool we created.
We also acquired CoinDesk for $300,000 during the low point of the cryptocurrency bear market and developed it into a business, which I sold to my friend Brendan a year ago for a good price. Additionally, we acquired Luno (a Coinbase-like platform for emerging markets, primarily dominant in Nigeria and South Africa), and so far, we have invested in about 300 companies and 50 different crypto assets.
Q: How does your mining business operate?
Barry: We have two businesses. One is Foundry, which runs the mining pool and has built the infrastructure that enables these American miners to mine Bitcoin and secure the network. It also has on-site operations, with a team that essentially builds and operates facilities for many miners across the country. Foundry does not take on capital risk and does not engage in the purchase of mining machines or speculate on Bitcoin prices; its core mission is to drive the infrastructure development and growth of the U.S. Bitcoin mining industry. For us, this is clearly a complex and challenging business because it involves Bitcoin, and your revenue fluctuates, but we don’t have to make large capital investment decisions or assess hash rates or payback periods.
The other business is Fortitude, where we actually mine ourselves. We developed or created the first "risk miner," mining many different tokens, all proof-of-work (POW) tokens, treating mining more like venture capital. This is a good business, and not many miners do this.
Crisis and Rebirth
Q: How did the cryptocurrency crash of 2022 happen?
Barry: During COVID, the global economy was severely impacted, and countries adopted "money printer go brr" policies, leading to skyrocketing prices in 2021 and creating an asset bubble. Over-leverage was prevalent across various assets, with complex relationships between many known and unknown lenders and borrowers.
First, the Terra Luna decoupling event triggered a series of chain reactions. Subsequently, Three Arrows Capital (3AC) failed to meet Genesis's margin call in June, which became the catalyst. 3AC borrowed from multiple sources, but its status as the largest borrower was not widely known. When 3AC collapsed, many counterparties were affected. As the largest lender and major broker in the field, Genesis had to mark its balance sheet to market after the collapse of 3AC, leading to a capital shortfall. Digital Currency Group (DCG) intervened and provided support.
However, the occurrence of the FTX incident further exacerbated market distrust, and trust in counterparties evaporated. This crisis of trust triggered a "bank run" on Genesis and similar institutions, ultimately forcing Genesis to shut down operations and enter bankruptcy proceedings.
Q: What was the experience of getting through this crisis like for you personally?
Barry: It was difficult in many ways. On one hand, everything in cryptocurrency and social media was amplified, both good and bad, including lies. It was shocking how willing people were to fabricate and believe these falsehoods, and I received many death threats during this time.
Additionally, I was surprised by how regulators exercised their power, and more challenging was that during this process, my daughter was diagnosed with cancer, so I was dealing with a business crisis while accompanying my daughter through chemotherapy and surgery. Fortunately, my daughter has been cancer-free for nine months now, and DCG is thriving.
New Journey: The Intersection of AI and xCrypto Innovation
Q: What made you shift from focusing on Bitcoin to the broader crypto space?
Barry: Part of the reason is that I have external shareholders and employees, and as this asset class grows and more applications are built, it seems wise to keep an open mind towards other cryptocurrencies that may have practical utility. I don't want to be a maximalist just for the sake of being a Bitcoin maximalist.
Another reason is that some very interesting teams have emerged in the process, and I am excited about them. I like to bet on underdogs, big ideas, and visionary people. I think most people now recognize that there may not be much of value beyond Bitcoin, which is also my current thought.
Q: What sparked your interest in the intersection of AI and blockchain?
Barry: For the past 12-13 years, since I first bought Bitcoin, I have maintained a curious intellectual interest in everything emerging in our field. I believe that 99.9% of crypto tokens have no reason to exist and are worthless, so my threshold for being excited about something is really high.
In the past few years, as AI has become a theme, I started to appreciate the power of AI. People on my team were introduced to several individuals who wrote a white paper on Bittensor in 2021, and they were excited about it. I began to explore the intersection of crypto and AI, and I think many early applications are using crypto as a payment solution for AI rather than building infrastructure on which to build AI.
After delving into Bittensor, I believe it represents the next big era in the crypto space, akin to significant themes like Bitcoin, Ethereum, NFTs, L2, and DeFi. Last year, we decided to invest in Bittensor and build projects on it to help educate the market, raise awareness, and create access opportunities. I launched a new business called Yuma last fall and took on the role of CEO, focusing on the development and promotion of Bittensor while continuing to operate DCG.
Why Bittensor Attracts Bitcoin OGs and AI Enthusiasts
Q: What is Bittensor?
Barry: If you ask five people what Bittensor is, you might get 15 different answers. This phenomenon is very similar to the early days of Bitcoin in 2012. At that time, Bitcoin was described as digital gold, blockchain, a payment system, and a global currency.
Bittensor is a decentralized intelligent network, with the core idea of creating a global permissionless platform that incentivizes global intelligence to solve any problem or challenge. This incentive mechanism is realized through crypto tokens. For non-crypto individuals, Bittensor can be simply understood as the intelligent World Wide Web within the information internet. Anyone can launch what are called "subnets" on this platform, which are designed to leverage global intelligence to solve specific problems, such as computation, reasoning, data processing, or training. Subnets have already been launched to predict Bitcoin prices or sports scores.
Looking back at the history of internet development, the launch of the Mosaic browser 30 years ago triggered a Cambrian explosion of websites, similar to how people accessed the internet through Prodigy and America Online, akin to today's OpenAI and Claude. Today, Bittensor is leading a brand new era of open and permissionless innovation, with rapid development momentum.
Q: What excites you about Bittensor?
Barry: The Bittensor project has attracted widespread attention due to its unique fair launch mechanism and mission-driven community. Similar to Bitcoin, Bittensor started from a white paper, gradually developed into code, and ultimately launched without going through a venture capital round or reserving tokens for the foundation or team members. This means that participants in Bittensor are involved out of genuine interest in the technology, joining by purchasing or earning TAO tokens. As a result, the Bittensor community has organically formed, with members coming together around a shared mission and ambitious goals. The project adopts the same token economics as Bitcoin, with a cap of 21 million tokens and introduces a halving mechanism similar to Bitcoin, making its economic model easy to understand. This design not only emphasizes the crypto technology itself but also focuses on how to solve global problems through incentive mechanisms, attracting those who seek to change the world through innovative means.
Q: How do subnets operate?
Barry: In the past few months, the Bittensor platform has undergone significant upgrades, and now each subnet has its own token. This structure is somewhat similar to L2 solutions in blockchain, but differs in one key aspect: each subnet token is traded through TAO. TAO serves as the functional currency, becoming the pricing basis for all subnet tokens. When users attempt to predict which subnet can generate the most valuable intelligence, they are indirectly purchasing TAO in the process of buying subnet tokens, as all transactions are completed by liquidity pools. Currently, the Bittensor platform has launched 88 subnets, with new subnets emerging every two days. These subnets are independently operated by different teams, each focusing on solving intelligent problems in their respective target scenarios. At the same time, they are also collaboratively driving the widespread application of the entire Bittensor network and TAO tokens. By attracting more funds into their subnet tokens, these funds will ultimately flow into TAO, promoting the development of the entire ecosystem.
Two subnets may perform the exact same task, but one may excel and bring hundreds of millions of dollars in revenue to the entire ecosystem. As the value of that subnet token skyrockets, the other subnet's token will also rise. This collaborative model is unique in the crypto space, as it embodies a spirit of mutual support rather than pure competition. Any token launched on Ethereum or Solana typically lacks value flow to its underlying platform, with teams more focused on the value growth of their own tokens rather than the success of Ethereum or Solana itself. This phenomenon is somewhat similar to the NFT market priced in ETH, but the subnet collaboration in Bittensor demonstrates a closer connection and potential for shared growth.
Q: What types of people are in the Bittensor ecosystem?
Barry: Bitcoin OGs believe the current market is in a phase similar to 2012-2013, with Bittensor's price around $200 and a market cap of about $1.5 billion.
Unlike the early libertarian tendencies of Bitcoin, the Bittensor community has gathered a group of technically proficient AI enthusiasts from excellent backgrounds. These members have focused on building infrastructure over the past few months to make the intelligence generated by subnets accessible or monetizable. Related applications are also growing rapidly, helping people discover, invest in, and track subnets.
In the current market adjustment, community members are focused on the rapid development of their own projects, avoiding distractions from cryptocurrency and macroeconomic factors. Everyone is working hard to build infrastructure and correctly position their business and investments to seize opportunities before the market matures further.
In the context of the current market adjustment, many people are focusing on their own project development, undistracted by cryptocurrency and macroeconomic factors. Grayscale recently launched the Bittensor Trust, aiming to replicate its successful model with Bitcoin in 2013. This move signifies Grayscale's desire to enable more investors to conveniently participate in the Bittensor and Yuma ecosystems through this trust product. Grayscale's goal is to allow investors who are unfamiliar with or uninterested in staking, exchanges, or Uniswap pools to bet on what they believe could become the next Amazon of the intelligent World Wide Web.
Our investment strategy primarily focuses on infrastructure development, subnet tokens, and the TAO itself. We typically do not support projects that attempt to create enterprise value for equity holders and token holders, but rather focus on building the Bittensor ecosystem. Specifically, we are looking for infrastructure projects similar to Coinbase, BitGo, and Chainalysis to drive the development of Bittensor. We have launched an accelerator to help those interested in building subnets kickstart their projects, incentivizing smart talent globally to participate in the competition. Additionally, users holding TAO can stake on the Yuma platform.
Q: How does Bittensor differ from Bitcoin mining?
Barry: Bittensor and Bitcoin mining have significant differences in their economic incentive mechanisms. The Bitcoin network distributes about $12 billion in rewards to miners each year to maintain network security. However, Bittensor allocates these economic incentives to pay **computational providers, model owners, and data owners, similar to the operation of network infrastructure. At the current TAO price, there is about $500 million up for grabs in the Bittensor network, and as the price of TAO rises, this amount could increase to $1 billion, $5 billion, or even $10 billion. This incentive mechanism attracts not only large enterprises but also graduate students in dorms, all striving to find the best ways to contribute to the Bittensor network. This model creates strong economic incentives for various participants, driving the development and innovation of the network.
Q: How does Bittensor address the fact that AI costs are approaching zero?
Barry: Looking back, accessing the internet through America Online and Prodigy was the norm until the advent of browsers allowed users to obtain the same services for free. Today, Bittensor is redefining this model by providing cheaper and faster access to computation, models, and data. Its open design allows anyone globally to connect, balancing the competitive environment. This innovation will enable businesses like Uber, Airbnb, and TikTok to rise on the internet, similar to businesses that were unimaginable in 1995.
Bittensor eliminates single points of failure, such as API limitations from OpenAI or Meta, while providing redundancy and scalability. More importantly, it offers unrestricted open access without censorship, akin to the information World Wide Web. Teams need to think about how to leverage this generated intelligence to pay bills and achieve monetization. The emergence of Bittensor is not only a technological advancement but also a reaffirmation of the openness and innovative potential of the internet, providing limitless possibilities for the development of future business models.
Q: What do you envision for the future of Bittensor?
Barry: The boldest prediction I can make about Bittensor is that it may become a better version of Bitcoin as a global store of value. The Bitcoin network requires $1-1.2 billion annually to maintain its security, while Bittensor proposes a whole new vision: to use these funds to incentivize a global problem-solving network that encourages people to find solutions to significant world issues. Imagine if this funding increased from $1 billion to $2 billion, $5 billion, or even $10 billion, what kind of innovation and change that would bring. While providing security for the Bitcoin network is valuable, Bittensor, with its similar token economics to Bitcoin, including halving mechanisms and decentralization, shows tremendous potential.
However, I believe Bittensor possesses that religious fervor of early Bitcoin adopters, but unlike Bitcoin, it is not about creating digital gold, decentralized currency, or eliminating government control over wallets. Instead, Bittensor aims to help solve significant problems by leveraging global intelligence.
It feels like the future of the internet is scaled intelligence, and Bittensor is exploring decentralized applications of that intelligence. Currently, Bittensor is launching some subnets, some of which are directly related to AI, involving reasoning, training, or fine-tuning. These subnets encourage competition through incentive mechanisms, and anything that requires people to rally around competition can utilize these subnets. While Bittensor's applications are currently primarily focused on AI, its potential uses remain undefined. It provides incentive mechanisms for decentralized working teams, encouraging them to conduct activities for others and facilitating team collaboration, forming a coordinating layer. Meanwhile, Yuma plans to launch product solutions this year to enable people to directly access subnets.
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