Crypto Bear Market Didn’t Affect Abra: What’s in the Future of the Market?
Abra has long been a household name in the crypto industry, providing consumers worldwide with financial services and investment opportunities that are centered around Bitcoin (BTC) and other digital assets. NewsBTC sat down with Abra’s chief executive and founder, Bill Barhydt, last month to talk about the future of this industry, his firm, and enterprise blockchain applications.
Bill Barhydt, for those unaware, has worked with the CIA, NASA, Goldman Sachs, and Netscape throughout his career. He believes that his expanse of prior stints have helped him come to the conclusion that cryptocurrencies are the future.
– Charlie Lee argued that the downturn in the cryptocurrency market has allowed him and the Litecoin Foundation to build out their product and vision. But how has the so-called “ crypto winter” affected Abra specifically?
– Well, it hasn’t. People that are in crypto, are in crypto. Abra tends to deal with less of the trader, and more with the investor. The trader is someone who is doing lots of transactions each and every day or week. Abra users tend to come in and out over a few week timespan. So it’s a different type of user. If you compare Abra to a
trading site ( exchange), our user base tends to grow reasonably steady. [The exchanges’ user base] go up and down, up and down. Not to mention that half the trades, if not more, are bullshit. Look what’s on the crypto-to-crypto sites, and you can’t trust 85% of what’s happening. With Abra, every transaction is on-chain. You can’t spoof that because I’m paying mining fees. Our business model is very different. They’re getting pennies per trade, but we’re getting percentage points per trade on reasonably steady, growing volume figure.
– How has demand been for Abra’s equities product so far?
– Demand has been awesome. We’ve had tens of thousands of people sign up for early access and have been focused really on the international piece, where the value proposition is a lot stronger than in the U.S. So we have seen lots of market activity, particularly in Southeast Asia, and in places like Mexico, India, China, Korea, and etc. The deal with Abra is finding places that are hard to access, and make it easy to access. So we did that with
altcoins, and now we’re doing that with equities.
– Is Abra looking into offering derivatives?
– No, not in the way I think you mean [with your question]. I would like to enable things like shorting, but you have to be very careful with features like that for an array of reasons. In the context of your question, which I took to mean more like options and
futures, I don’t see that happening for us any time soon. That’s not the end all and be all of our user base, as that’s more of the BitMEX user rather than the Abra user.
– For those who aren’t exactly technically-adept, like myself, can you give a thirty second to one-minute explanation about Abra’s smart contract system?
– Probably not (*laughs*). In a nutshell, you are taking a position using Bitcoin when you buy anything. So if you want $1,000 worth of anything, you collateralize that with $1,000 worth of BTC. Then, when the value of what you are investing in goes up, you end up with more BTC, and when it goes down, you end up with less BTC. That happens automatically through Abra’s smart contracts based on Bitcoin scripting language. So that’s what these scripts do, they adjust the value of your investment as you are investing in those Apple shares, synthetic Monero, or what have you. But, the technology behind the scenes of all this is extremely complex. It uses P2SH, scripts with P2Pk addressing – that’s standard Bitcoin stuff, but we’re pushing the limits of what it can do.
– You recently told Fortune that you believe that enterprise blockchains will fail. Yet, some insiders like CZ from Binance and BlockTower’s Ari Paul argue that JPM Coin, FBCoin, or other projects of a similar nature will be instrumental in driving adoption. Would you concede there?
– So I think what they mean is people like you, a journalist, talking about it. I don’t think they want adoption of the JPM Coin, but adoption of the cryptocurrency space. They have the press talking about it. So that’s 70% of the battle when it comes to awareness — the media talking about it. Is it going to be around in five years? I would be stunned if it would be. I would be stunned if any of the enterprise
blockchain projects are around. Anyhow, I don’t really care, it’s not my space. It’s great in the context of getting people talking about the future of banking in relation to crypto, which is of interest to me.
– Enterprise blockchains aside, Fidelity recently launched its Bitcoin custody and trade execution solution. So what do you think of institutions entering the space if they only stick with true, decentralized cryptocurrencies?
– I think it’s great. So, if you think about what Abra is doing, we basically help retail investors get exposure to a myriad of assets all collateralized with Bitcoin. That means that if we’re successful, to the tune of like an E*trade, Charles Schwab, or Robinhood, there simply won’t be enough Bitcoin to collateralize all these contracts at scale. That’s good news for Bitcoin and institutional investors looking to get into this space. With equities and commodities, they can do technical and fundamental analysis, whether they’re investing in palladium, platinum, gold, etc. They could go talk to Apple, Samsung and find out why they need this.
But with Bitcoin, there’s no one to talk to, which is unique. You can’t come to Abra or other crypto startups about why you need Bitcoin. And I think that this is what will be interesting for institutional investors, who are looking and thinking hard about why Bitcoin is going to be hanging around in four or five years. Yes, hard money is all good, but this narrative may take thirty years or so [to play out]. I believe in it, I think we need a deflationary asset to compete with Federal Reserves across the globe, but that’s a long, long-term bet.
On the other hand, applications of using Bitcoin to collateralize exposure to a shadow/parallel banking system should be short-term appealing to institutional investors. Institutional investors don’t have a 40-year time horizon, right?
– Is the Abra team worried about scalability? For example, if we were to see the number of Bitcoin transactions seen in late-2017, would Abra have an issue offering its services?
– So, a couple of us at Abra are worried — we spend a bit of time on it. But having a native Ether wallet is the first step in having a multi-chain solution. Well, that’s not true exactly, having a Litecoin integration was our first multi-chain solution, but the problem is Litecoin isn’t that liquid… But having Bitcoin,
Ethereum, Litecoin, or even EOS if it finally gets there.
EOS is kind of in a beta stage, but if it finally goes mainstream in the sense that it’s not beta anymore — like I’d say that Ethereum is a little past beta, which is why the development team has slowed down change they wanted to make, which is a good thing and Bitcoin is well past beta in my opinion — having a multi-chain solution is the least risky way for us to deal with this issue without managing on-chain scaling issues. But make no mistake, this will require a multi-tiered solution, meaning eventually you will see Layer 2, Layer 3 solutions that Abra will need to interoperate with to scale our services to billions of people.
– So I know that Abra is all about being an all-in-one application for finance. Pompliano from Morgan Creek and Jeremy Allaire from Circle claim that all assets will be tokenized in the future. Do you agree with that?
– I listened to Jeremy on Pomp’s podcast recently and it was really good. He’s thought about that more than I have, but I can see to some degree why, and why that is interesting, especially in terms of cross-border payments. If you think about the way the U.S. is structured— the trading rules are so arcane, and they’re actually even worse now because of Dodd-Frank. The rules are the same, whether you have a digital
token or a paper asset that trades electronically. So for the rest of the world, there’s an opportunity to leapfrog the U.S., in enabling a mobile, always-on trading environment, which is extremely interesting. But the question becomes, where does digital trading interoperate with physical selling points. Ripple has that problem. When you tokenize money, and you want to do a better SWIFT, at some point, the money has to move. Settlement is still an issue when you tokenize assets because the stuff still exists in the physical world. I haven’t thought about this as much as they have, but I’m sure this is a problem that you can’t solve in the short-term. But look, tokens can enable more frictionless trading, but not in the U.S. in the short-term.
– What is the primary thing holding back the adoption of cryptocurrencies right now?
– Applications that hide the existence of crypto. Let me explain. So look at 1993. I had friends that started this company called FTP Software, you’ve probably never heard of it. It doesn’t exist anymore. And there’s a good reason why it doesn’t exist. Their primary product was basically selling you TCP/IP software that you can install on Windows 3.11 to access the Internet. So when you bought Windows in the early 90s, there was no TCP/ IP stack, meaning that you couldn’t access the internet. So you had to know what TCP/IP was before Windows 95 to access the Internet. To you, that may sound crazy. But that’s exactly where we are at with Bitcoin today.
I understand what a private key is, as do you, but the vast majority of the seven billion people on Earth have no idea what a private key is. And maybe, they may never be interested in understanding private keys. So what we have to figure out is how to take the valuable applications that I’m pontificating about and make them so easy to use that you don’t even know you are using Bitcoin. And when we talk about buying Apple shares through Abra, I bet you that three years from now, the average user of our platform won’t even know that we are using Bitcoin. Right now, people do need to use Bitcoin. But again, the analogy is like 1992-1993, when you had to install TCP/IP. Eventually, people won’t need to know that TCP/IP is there. But yeah, unfortunately, Abra is one of the only true functioning examples of Bitcoin in the real world that I can point to right now. And that’s shocking to me, having only a few applications after ten years.
– So do you think that people not using Bitcoin for an application like Abra’s has something to do with how it doesn’t have a VM or Solidity?
– Well, our contracts are based on Bitcoin Script. It’s a very simple programming language, but it’s not Turing Complete like Ethereum’s. But the bigger problem is that these things are complex, and people treat BTC, Ether, etc. as speculative assets, rather than programmable money. So we need a concerted industry— even academic — effort to start focusing on programmable money as an idea, through financial engineering and computer science but that will take ten years.
To your earlier question, knowing what I did allowed me to build out Abra, which is really complex behind the scenes. So most startups likely wouldn’t be able to handle it, as there is so much up-front work. It’s so much easier to build an exchange to speculate with, hence why there are so many of them, since they are so easy to make. We need people to understand and to find out more about how programmable money works, and what it’s good for, along with how financial engineering works and how to marry the two.
– With that about programmable money in mind, do you expect for Bitcoin to continue to hold dominance over the broader cryptocurrency market?
– As a hard money, yes. As programmable money, the opportunity is there for Ethereum to take some share, and EOS too. I see a lot of new, interesting applications and services on those platforms. Financial derivatives, commodity derivatives are really interesting. And oil and gas industries, which are basically dependent on traditional financial engineering, could begin to make their way into the Ethereum world at some point. So I think in some senses, the non-Bitcoin chains will be able to excel. But those aren’t true, hard money, but application platforms, which is fine.
– What are your short-term expectations for the price of Bitcoin? Do you expect the block reward reduction to play a strong positive role on the price?
– I don’t think the halving will. I think it is going to be a little flat for a while, except for some short-term peaks and valleys. Now, we are in the part of that typical adoption curve where there’s the trough of disillusionment. The last model I saw of this adoption curve was location-based services. In the early-2000s, VC money was flooding into LBS before the iPhone – it was way ahead of its time. So it went up, peaked when the iPhone and Android phones started to out, and then crashed. So, we are in the trough of disillusionment with crypto, and may start to climb again when services like ours actually cause real-world adoption to happen, which requires institutional liquidity.
When they see that all our users are purchasing crypto, the prices will start to get forced up. But when speculation isn’t the only thing pushing the market, the institutions will want to come in. This could very well take, 1, 2, 3, 4, 5, 6 years though. I don’t really care, but it has to happen, as there simply isn’t enough Bitcoin to go around.