Original text: Raoul Pal
Compiled by: Yuliya, PANews
As cryptocurrency and blockchain technology develop rapidly, Barry Silbert, founder and CEO of DCG (Digital Currency Group), is undoubtedly a pioneer in the industry. In his latest 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, through the bull and bear markets, including the 2022 cryptocurrency crash.
Now, Barry has set his sights on his next big bet, Bittensor. He elaborates on his role as founder and CEO of Yuma and how Bittensor could become a more transformative decentralized smart network layer than Bitcoin. This article will delve into Barry's experience, the development of DCG, the 2022 crisis, and his outlook on Bittensor and the future of AI. PANews has compiled this podcast in text.
Bitcoin Enlightenment Journey
Q: Barry, please share how you made the transition from Wall Street to Bitcoin?
Barry: I started out as an investment banker, but I realized I needed to create something new, so I founded Second Market, the first marketplace for private stocks and illiquid assets. This platform played an important role during the 2008 credit crisis, when many companies like Facebook and Twitter were unable to raise funds through the IPO market, and Second Market became an important channel for trading the stocks of these companies.
I first came across Bitcoin in 2011 through a Wired article/Jason Calacanis podcast. At the time, I was still cautious as I thought the effects of the credit crisis had not yet subsided. I spent six months researching Bitcoin, reading a lot of materials and talking to people in the industry. By early 2012, I realized that Bitcoin could have a profound impact on the world and decided to get involved before I regretted it later.
Q: At what price did you initially buy Bitcoin?
Barry: I bought hundreds of thousands of dollars of Bitcoin at $7-8 through the Mt. Gox platform. The price once rose to $30 and then fell to $5. In the next 6-12 months, it began to rise to $50, $60, and $70. So I started looking for companies that built Bitcoin infrastructure to invest in, such as Coinbase, Chainalysis, Ripple and other first-generation infrastructure companies.
Interestingly, I actually made these investments in Bitcoin. I would have actually gotten a better return if I had just held on to those Bitcoins instead of investing in these companies. Those of us who were early Bitcoin holders all have similar stories - in 2013, my wife and I had our first daughter and we were all trying to get people to use Bitcoin, and I remember using $2,000-5,000 worth of Bitcoin to buy gift cards, mainly for diapers. I've never gone back and calculated how much that money would be worth today, but it's safe to say that the Bitcoin in 2013 is worth a lot of money now.
Empire Rise: Grayscale and the Birth of DCG
Q: How did Grayscale and DCG come about?
Barry: I was running Second Market at the time, and I told the board (including Chamath Palihapitiya) that I thought we should do something big in the Bitcoin space. We have tens of thousands of sophisticated investors looking for interesting alternative investments. I knew the history of gold and gold investing, and knew that gold ETFs were the catalyst for making gold an available, accessible, and legitimate asset class.
I decided to build a Bitcoin version of the SPDR Gold ETF. We approached 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 vehicle and then traded it publicly on the OTC QX market, which became the Grayscale Bitcoin Trust.
As we were buying a lot of Bitcoin, we also built a Bitcoin exchange, started buying Bitcoin ourselves and investing from our balance sheet. Eventually, in 2014, Nasdaq called and said they wanted to buy Second Market, so I sold Second Market to Nasdaq and went all in on Bitcoin. The Bitcoin product became Grayscale, the trading business became Genesis, and the portfolio became DCG.
Q: How much assets does Grayscale manage now?
Barry: I think it will be around $30 billion by the end of the year. Grayscale, as a pioneer, has been very innovative in product design, making this asset class more accessible to the mainstream market, although many investors still find it difficult to participate easily.
Grayscale now has over 30 different products, there is the Bitcoin Trust, Bitcoin Mini, Large Cap Trust (code GDLC), and then the single token trust. The Grayscale model is to open up these tokens, open up this asset class to a wider range of investors, and turn it from a private trust into a publicly traded trust.
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 think have the opportunity to change the world, and then we bring our capabilities to those ecosystems: we invest, we build, we buy, we educate, we create access opportunities. It doesn't happen often, I do it about once every 5 years, but when we do it, we are very successful.
The uniqueness of the DCG model is that we are a private firm rather than a fund, and as a private firm 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 from now and bet on it. I'm going to be wrong more often than I'm right, but when you're right, the rewards are huge.
Q: How did DCG grow into such a large company?
Barry: We are in a unique position to be the bridge between this asset class and the traditional investment market. Over the next five years, we launched Foundry, which is now the largest Bitcoin mining pool in the world. Before Foundry, there was basically no Bitcoin mining activity in the United States, and China controlled about 80% of the computing power.
We decided to bring Bitcoin mining to the United States by providing funding for American miners, buying a lot of equipment from equipment manufacturers, and then providing financing to these miners to help them get started. As part of that, we set up this mining pool, and now one-third of all Bitcoin transactions are processed through the Foundry USA mining pool that we created.
We also bought CoinDesk for $300,000 at the bottom of the crypto bear market, built it into a business, and sold it to my friend Brendan a year ago for a good price. We also bought Luno (a Coinbase-like platform for emerging markets, mainly in Nigeria and South Africa), and to date we have invested in about 300 companies and 50 different crypto assets.
Q: How does your mining business work?
Barry: We have two businesses. One is Foundry, which runs mining pools and builds the infrastructure that enables these American miners to mine Bitcoin and protect the network. It also has field operations, with a team that basically builds and runs facilities for many miners across the country. Foundry does not take capital risk, nor does it participate in the purchase of mining machines or speculation in Bitcoin prices. Its core mission is to promote the construction and development of infrastructure for the Bitcoin mining industry in the United States. For us, this is obviously a complex and challenging business because it is Bitcoin and your income fluctuates, but we don't have to make large capital investment decisions or evaluate hash rates or payback periods.
Another business is Fortitude, where we actually do the mining ourselves, we developed or created the first "venture miner" and we mine a lot of different coins, all proof of work (POW) coins, treating mining more like venture capital. It's a good business and there aren't a lot of miners doing this.
Crisis and rebirth
Q: How did the 2022 cryptocurrency crash happen?
Barry: During the COVID period, the global economy was hit hard, and countries adopted the policy of "printing money", which led to soaring prices and the formation of asset bubbles in 2021. Excessive leverage is prevalent in all types of assets, and there are complex relationships between many known and unknown lenders and borrowers.
First, Terra Luna’s decoupling set off a chain reaction. Then, Three Arrows Capital (3AC) failed to meet Genesis’ margin call in June, which became the fuse. 3AC borrowed from multiple sources, but its status as the largest borrower was not well known. When 3AC collapsed, many counterparties were affected. As the largest lender and prime broker in the space, Genesis had to mark-to-market its balance sheet after 3AC collapsed, resulting in an equity gap. Digital Currency Group (DCG) stepped in and provided support.
However, the FTX incident further exacerbated the market’s distrust, and all parties lost trust in their counterparties. This crisis of trust triggered a “bank run” on Genesis and similar institutions, ultimately forcing Genesis to shut down its business and enter bankruptcy proceedings.
Q: What has it been like for you personally to navigate this crisis?
Barry: It was tough in a lot of ways. On the one hand, everything in cryptocurrency and social media was amplified, good and bad, even lies. It was shocking how much people were willing to make up and believe this false information, and I received a lot of death threats during this period.
I was also surprised at the way the regulators exercised their powers, and to make matters even more difficult, 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 is now 9 months cancer-free and DCG is thriving.
New Journey: Cross-innovation of AI and xCrypto
Q: What made you switch from focusing on Bitcoin to the broader crypto space?
Barry: Part of the reason is that I have outside shareholders and employees, and as this asset class grows and more applications are built, it seems wise to keep an open mind to other cryptocurrencies that may have real utility. I don't want to be a maximalist just for the sake of being a Bitcoin maximalist.
Another reason is that there are some very interesting teams that have emerged in the process that I am excited about. I like betting on underdogs, big ideas, and visionaries. I think most people have now realized that there may not be much valuable outside of Bitcoin, and that is also my current thinking.
Q: What got you interested in the intersection of AI and blockchain?
Barry: Over the last 12-13 years, ever since I first bought Bitcoin, I have been intellectually curious about everything that has emerged in our space. I think 99.9% of crypto tokens have no reason to exist and are worthless, so my threshold for getting excited about something is really high.
Over the last few years, as AI became a topic, I started to appreciate the power of AI. People on my team were introduced to a couple of people who wrote a white paper about Bittensor in 2021, and they were excited about it. I started looking at the intersection of crypto and AI, and I think a lot of the early applications were using crypto as a payment solution for AI, rather than building the infrastructure to build AI on top of it.
After digging into Bittensor, I think it is the next big era in the crypto space, similar to important themes such as Bitcoin, Ethereum, NFT, L2, and DeFi. Last year we decided to invest in Bittensor and build projects on it to help educate the market, increase awareness, and create access opportunities. I launched a new business called Yuma last fall and served as CEO, focusing on the development and promotion of Bittensor while continuing to run DCG.
Why Bittensor is attracting Bitcoin OGs and AI enthusiasts
Q: What is Bittensor?
Barry: If you ask five people what Bittensor is, you might get 15 answers. This phenomenon is very similar to the early days of Bitcoin in 2012. At that time, Bitcoin was described as digital gold, blockchain, payment system and global currency.
Bittensor is a decentralized intelligent network. Its core concept is to create a global permissionless platform that can solve any problem or challenge by incentivizing global intelligence. This incentive mechanism is implemented through crypto tokens. For non-crypto people, Bittensor can be simply understood as an intelligent World Wide Web in the Internet of Information. Anyone can launch so-called "subnets" on this platform, which are designed to use global intelligence to solve specific problems, such as computing, reasoning, data processing or training. Subnets have been launched to predict Bitcoin prices or sports scores.
Looking back at the history of the development of the Internet, the launch of the Mosaic browser 30 years ago triggered the Cambrian explosion of websites, when people accessed the Internet through Prodigy and America Online, similar to today's OpenAI and Claude. Today, Bittensor is leading a new era of open and permissionless innovation, and its momentum is rapid.
Q: What excites you about Bittensor?
Barry: The Bittensor project has attracted widespread attention with its unique fair launch mechanism and mission-driven community. Similar to Bitcoin, Bittensor started with a white paper, gradually developed into code and finally launched, without going through venture capital rounds and reserving tokens for foundations or team members. This means that participants in Bittensor all joined because of their real interest in technology, by purchasing or earning TAO tokens. The Bittensor community was thus formed organically, with members united by a common mission and ambitious goals. The project adopts the same token economics as Bitcoin, has a token cap of 21 million, and introduces a halving mechanism similar to Bitcoin, making its economic model easy to understand. This design not only emphasizes encryption technology itself, but also focuses on how to solve global problems through incentive mechanisms, attracting those who are trying to change the world through innovative means.
Q: How do subnets work?
Barry: Over the past few months, the Bittensor platform has undergone a significant upgrade, and each subnet now has its own token. This structure is somewhat similar to the L2 solution of blockchain, but it is different in one key aspect: each subnet token is traded through TAO. TAO, as a functional currency, becomes the basis for the valuation of all subnet tokens. When users try to predict which subnet can produce the most valuable intelligence, they are actually indirectly buying TAO in the process of purchasing subnet tokens, because all transactions are completed by the liquidity pool. Currently, the Bittensor platform has launched 88 subnets, and new subnets are launched 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 working together to promote the widespread application of the entire Bittensor network and TAO tokens. By attracting more funds to their subnet tokens, these funds will eventually flow into TAO, promoting the development of the entire ecosystem.
Two subnets may perform the exact same task, but one may outperform, generating hundreds of millions of dollars for the entire ecosystem. As the value of that subnet’s token soars, so too will the other subnet’s token. This collaborative model is unique in crypto because it embodies a community 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 growing the value of their own tokens than on the success of Ethereum or Solana itself. This phenomenon is somewhat similar to the ETH-priced NFT market, but Bittensor’s subnet collaboration demonstrates a closer connection and the potential for shared growth.
Q: What types of people are there in the Bittensor ecosystem?
Barry: Bitcoin OG believes that the current market is in a stage similar to 2012-2013, with the price of Bittensor at around $200 and a market value of around $1.5 billion.
Unlike the libertarian tendencies of Bitcoin in its early days, the Bittensor community has brought together a group of technical AI enthusiasts from excellent backgrounds. These members have focused on building infrastructure in the past few months to make the intelligence generated by subnets accessible or monetized. Related applications are also growing rapidly to help people discover, invest in, and track subnets.
In the current market correction, community members are focusing on the rapid development of their own projects and avoiding being distracted by cryptocurrencies and macroeconomic factors. Everyone is working hard to build infrastructure and correctly position their businesses and investments to seize opportunities before the market matures further.
In the context of the current market correction, many people are focusing on the development of their respective projects, not being distracted by cryptocurrencies and macroeconomic factors. Grayscale recently launched Bittensor Trust, which aims to replicate its successful model for Bitcoin in 2013. This move marks Grayscale's hope that through this trust product, more investors can more easily participate in the Bittensor and Yuma ecosystem. Grayscale's goal is to allow investors who are not familiar with or do not care about staking, exchanges or Uniswap pools to bet on projects they think may become the next Amazon of the smart world wide web.
Our investment strategy focuses on infrastructure construction, subnet tokens, and investments in TAO itself. We generally do not support projects that attempt to create enterprise value for equity holders and token holders, but focus on the construction of the Bittensor ecosystem. Specifically, we are looking for infrastructure projects similar to Coinbase, BitGo, and Chainalysis to promote the development of Bittensor. We have launched an accelerator to help those who are interested in building subnets start projects and encourage smart people around the world to participate in the competition. In addition, users who own TAO can stake on the Yuma platform.
Q: How is Bittensor different from Bitcoin mining?
Barry: There are significant differences in the economic incentives between Bittensor and Bitcoin mining. The Bitcoin network pays miners about $12 billion in rewards each year for maintaining network security. However, Bittensor uses these economic incentives to pay computing 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 TAO price rises, this amount may increase to $1 billion, $5 billion, or even $10 billion. This incentive mechanism not only attracts large companies, but also graduate students in dormitories, who are all trying to find the best way to contribute to the Bittensor network. This model creates a strong economic incentive for all kinds of participants to drive the development and innovation of the network.
Q: How does Bittensor deal with the fact that the cost of AI is close to zero?
Barry: Looking back, accessing the Internet through America Online and Prodigy was the norm until the launch of browsers allowed users to get the same services for free. Today, Bittensor is redefining this model by providing cheaper and faster access to computing, models, and data. Its open design allows anyone in the world to access it, leveling the playing field. 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 OpenAI or Meta’s API restrictions, while providing redundancy and scalability. More importantly, it is open to unrestricted access without censorship, similar to the World Wide Web of information. Teams need to think about how to use this generated intelligence to pay bills and realize monetization. The emergence of Bittensor is not only a technological advancement, but also a reaffirmation of the openness and innovation potential of the Internet, providing unlimited possibilities for the development of future business models.
Q: What do you think the future of Bittensor will look like?
Barry: The boldest prediction I can make about Bittensor is that it could be a better version of Bitcoin as a global store of value. The Bitcoin network costs $1-1.2 billion per year to maintain its security, and Bittensor presents a completely new vision: using these funds to incentivize a global problem-solving network to encourage people to find solutions to major world problems. Imagine the innovation and change that would come if these funds increased from $1 billion to $2 billion, $5 billion, or even $10 billion. While there is value in providing security for the Bitcoin network, Bittensor shows great potential with its same token economics as Bitcoin, including halving mechanism and decentralization.
But I think Bittensor has the same religious feeling 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 major problems by leveraging global intelligence.
It feels like the future of the Internet is scaled intelligence, and Bittensor is exploring decentralized applications of this 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 any transaction that requires people to compete around them can take advantage of these subnets. Although Bittensor's applications are currently focused on the field of AI, its potential uses are not yet clear. It provides incentives for decentralized work teams to carry out activities for others and promote team collaboration to form a coordination layer. At the same time, Yuma plans to launch product solutions this year to enable people to directly access subnets.
