Conversation with DCG Founders: From Bitcoin Pioneer to AI Revolution, Barry’s Cryptocurrency Empire and Bittensor Vision

Original text: Raoul Pal

Compiled by: Yuliya, PANews

Today, with the rapid development of cryptocurrency and blockchain technology, 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 shares his journey from early Bitcoin investors to building DCG and its subsidiaries such as Grayscale and Foundry, Barry has experienced a bull-bear transition in the market, including the cryptocurrency crash in 2022.

Now, Barry is turning his attention to the next big bet - Bittensor. He elaborated on his role as Yuma founder and CEO and how Bittensor could become a more transformative decentralized intelligent network layer than Bitcoin. This article will explore Barry's experience, DCG's development, the 2022 crisis, and his outlook for the future of Bittensor and AI. PANews compiled text for this podcast.

Bitcoin Enlightenment Journey

Q: Barry, please share how you switched from Wall Street to Bitcoin?

Barry: I was initially an investment banker, but I realized that I needed to create something new, so I founded the Second Market, the first trading market for private stocks and illiquid assets. The platform played an important role during the 2008 credit crisis, when many companies such as Facebook and Twitter were unable to raise funds through the IPO market, and Second Market became an important channel for trading stocks of these companies.

In 2011, I first came across Bitcoin through a Wired article/Jason Calacanis podcast. At the time I still thought the impact of the credit crisis had not subsided, so stay cautious. I spent six months researching Bitcoin, reading a lot of information and talking to industry insiders. By early 2012, I realized that Bitcoin could have a profound impact on the world and decided to participate in it so as not to regret it later.

Q: At what price did you initially buy Bitcoin?

Barry: I bought hundreds of thousands of dollars in Bitcoin for $7-8 through the Mt. Gox platform. The price once rose to $30 and fell to $5, and in the next 6-12 months, it began to rise to $50, 60, and 70. So I began to look for companies to build Bitcoin infrastructure to invest, such as early on investing in first-generation infrastructure companies such as Coinbase, Chainalysis, and Ripple.

Interestingly, I actually made these investments with bitcoin. If I just held those bitcoins instead of investing in these companies, I would actually get a better return. We early bitcoin holders have similar stories – in 2013, my wife and I had my first daughter, and we were all trying to get people to use bitcoin, and I remember buying gift cards with bitcoin worth $2,000-5,000, which was mainly used to buy diapers. I have never looked back and calculated how much the money is now worth, but it is certain that the 2013 Bitcoin is now worth amazing.

The Rise of Empire: The Birth of Grayscale and DCG

Q: How were Grayscale and DCG born?

Barry: I was running Second Market at the time, and I told the board of directors (including Chamath Palihapitiya) that I think we should do something big in the Bitcoin space. We have tens of thousands of complex investors looking for interesting non-mainstream investments. I understand the history of gold and gold investments and know that gold ETFs are the catalysts that make gold an accessible, accessible and legal asset class.

I decided to build 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 Bitcoin ETFs in 2013, so we did a groundbreaking thing - we launched it as a private tool and then traded publicly in the OTC QX market, which became the Grayscale Bitcoin Trust.

As we purchased a lot of bitcoins, we also built a Bitcoin trading platform, started buying bitcoins ourselves and investing from our balance sheet. Finally, in 2014, Nasdaq called and said they wanted to acquire Second Market, so I sold Second Market to Nasdaq and then put all my efforts into Bitcoin. Bitcoin products became Grayscale, trading business became Genesis, and investment portfolio became DCG.

Q: How many assets does Grayscale manage now?

Barry: I think it will be about $30 billion by the end of the year. As a pioneer, Grayscale is extremely innovative in product design, making this asset class more easily accepted by mainstream markets, although many investors still have difficulty in participating easily.

Grayscale now has over 30 different products, including Bitcoin Trust, Bitcoin Mini, Large-Charge Trust (Code GDLC), and then Single Token Trust. The Grayscale model is to open these tokens, open this asset class to a wider range of investors, turning it from a private trust into a publicly traded trust.

I like to think of Grayscale as the next Vanguard Group. Just like Pioneer Group’s pioneer index investment and PIMCO’s pioneer bond investment, Grayscale is pioneering crypto investment.

Q: What is DCG’s investment strategy?

Barry: We talk about what is called "DCG scripts." We identify protocols and tokens that we think have the opportunity to change the world, and then we bring our capabilities to these ecosystems: we invest, build, buy, educate, create access opportunities. This doesn't happen often, I do it about every 5 years, but when we do it, we're very successful.

What’s unique about the DCG model is that we are a private company rather than a fund, and 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 work to try to foresee the world 5 or 10 years from now and place bets. I will be more wrong than the right one, but when you are right, the reward is huge.

Q: How did DCG grow into such a huge enterprise?

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, 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 funds to American miners, buying a large amount of equipment from equipment manufacturers, and then financing these miners to help them get started. As part of this, we built this pool and now one-third of the bitcoin transactions are done through the Foundry USA pool we created.

We also bought CoinDesk for $300,000 during the trough of the crypto bear market, and grew it into a business that sold to my friend Brendan a year ago for a good price. In addition, we have acquired Luno (a similar platform for Coinbase for emerging markets, mainly 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 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 establishes and operates facilities for many miners across the country. Foundry does not assume capital risks, nor participate in mining machine purchases or Bitcoin price speculation. Its core task is to promote the infrastructure construction and development of the US Bitcoin mining industry. For us, it's obviously a complex and challenging business because it's Bitcoin and your income is fluctuating, but we don't have to make large capital investment decisions, nor have we evaluate the hash rate or return period.

Another business is Fortitude, we are actually mining ourselves, we develop or create the first "risk miner", we mine many different tokens, all Proof of Work (POW) tokens, and treat mining as more like venture capital. It's a good business and there aren't many miners doing this.

Crisis and rebirth

Q: How did the cryptocurrency crash happen in 2022?

Barry: During the COVID period, the global economy has suffered a huge impact, and countries have adopted the policy of "starting money printing machines", which has led to a surge in prices in 2021 and formed an asset bubble. Excessive leverage is common in all types of assets, and many known and unknown lenders have complex relationships with borrowers.

First, Terra Luna’s decoupling incident triggered a series of ripple effects. Subsequently, Three Arrows Capital (3AC) failed to meet Genesis margin requirements in June, becoming the fuse. 3AC borrows from multiple channels, but its status as the largest borrower is not well known. When 3AC went bankrupt, many counterparties were affected. As the largest lender and major broker in the field, Genesis had to adjust its balance sheet by market capitalization after the 3AC crash, resulting in an equity gap. Digital Currency Group (DCG) stepped in and provided support.

However, the occurrence of the FTX incident further aggravated the market's distrust, and the trust of all parties in their counterparties disappeared. This crisis of trust triggered a "bank run" for Genesis and similar institutions, which ultimately forced Genesis to close its business and enter bankruptcy proceedings.

Q: What is it like to experience this crisis for you personally?

Barry: It's tough in many ways. On the one hand, everything in cryptocurrency and social media is amplified, both good and bad, and even lies. Shockingly, people are willing to fabricate and believe this false information, and I have received a lot of death threats during this period.

In addition, I was also surprised by the way regulators exercised their powers, and what was even more difficult was that my daughter was diagnosed with cancer during the process, so I accompanied my daughter for chemotherapy and surgery while dealing with the business crisis. Fortunately, my daughter has no cancer for 9 months now and DCG is thriving.

New Journey: Cross-Innovation between AI and xCrypto

Q: What has moved you from focusing on Bitcoin to a wider 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 stay open for other cryptocurrencies that may have practical utility. I don't want to be the biggest slogan just to be the biggest slogan of Bitcoin.

Another reason is that there are some really interesting teams in the process and I'm excited about them. I like to bet on the disadvantaged, big ideas and visionary people. I think most people have realized by now that there may not be much valuable besides Bitcoin, which is what I think now.

Q: What made you interested in the intersection of AI and blockchain?

Barry: I have been intellectually curious about everything that has emerged in our field for the last 12-13 years since I first bought Bitcoin. I don't think 99.9% of crypto tokens have no reason to exist and are worthless, so the bar for me to be excited about something is really high.

Over the past few years, as AI has become a theme, I have begun to appreciate the power of AI. The people on my team were introduced to several people who wrote a white paper about Bittensor in 2021 and they were excited about it. I started to look at the intersection of encryption and AI, and I think a lot of early applications were using encryption as a payment solution for AI, rather than building infrastructure to build AI on it.

After delving into Bittensor, I think this is the next big era in the crypto space, similar to important topics 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, improve 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 operate DCG.

Why Bittensor attracts Bitcoin OG 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 systems and global currency.

Bittensor is a decentralized intelligent network with the core philosophy of creating a global permissionless platform that solves any problem or challenge by inspiring global intelligence. This incentive mechanism is achieved through crypto tokens. For non-encrypted people, Bittensor can be simply understood as the smart World Wide Web in the information Internet. Anyone can launch so-called "subnets" on this platform, which aim to solve specific problems with global intelligence, such as computing, inference, data processing or training. Currently, 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 Mosaic browser 30 years ago triggered the Cambrian outbreak of the website, 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, with its rapid development momentum.

Q: What makes you excited about Bittensor?

Barry: The Bittensor project has attracted widespread attention with its unique fair start mechanism and mission-driven community. Similar to Bitcoin, Bittensor started with a white paper, gradually evolved into code and eventually started without going through a venture round or reserved tokens for foundations or team members. This means that Bittensor participants are all joined by buying or earning TAO tokens because of their real interest in technology. The Bittensor community is thus organically formed, and members are brought together by a shared mission and ambitious goals. The project adopts the same token economics as Bitcoin, has a 21 million token cap and introduces a Bitcoin-like halving mechanism to make 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 does the subnet work?

Barry: Over the past few months, the Bittensor platform has undergone an important upgrade, and every subnet currently has its own token. This structure is a bit similar to the blockchain’s L2 solution, but it’s different in one key aspect: every subnet token is traded through TAO. As a functional currency, TAO has become the basis for valuation of all subnet tokens. When users try to predict which subnet can generate the most valuable intelligence, they are actually buying TAO indirectly in the process of purchasing subnet tokens, because all transactions are done by liquidity pools. Currently, the Bittensor platform has 88 subnets online, and a new subnet is released every two days. These subnets are independently operated by different teams, focusing on solving intelligent problems in their respective target scenarios. At the same time, they are also jointly promoting the widespread use of the entire Bittensor network and TAO tokens. By attracting more money to flow into their subnet tokens, these funds will eventually flow into TAO, promoting the development of the entire ecosystem.

Two subnets may perform exactly the same tasks, but one of them may perform well, thus bringing hundreds of millions of dollars in revenue to the entire ecosystem. As the value of this subnet token soars, the tokens of another subnet will also rise. This collaboration model is unique in the field of encryption because it embodies a spirit of mutual support rather than a simple competitive relationship. Any token launched on Ethereum or Solana usually lacks the value flow to its underlying platform, and the team is more concerned about the value growth of its own tokens than the success of Ethereum or Solana itself. This phenomenon is somewhat similar to the NFT market priced by ETH, but Bittensor's subnet collaboration demonstrates closer connections and potential for common 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 Bittensor's price being about US$200 and a market value of approximately US$1.5 billion.

Unlike Bitcoin’s early liberal tendencies, the Bittensor community gathered a group of technical AI enthusiasts from excellent backgrounds. These members have been focusing on building infrastructure over the past few months to make the intelligence generated by subnets accessible or monetized. Related applications are also growing rapidly, helping people discover, invest and track subnets.

In the current market adjustment, community members focus on the rapid development of their own projects to avoid being distracted by cryptocurrency and macroeconomic factors. Everyone is working to build infrastructure and correctly position business and investments to seize the lead before the market matures further.

Against the backdrop of the current market adjustment, many are focusing on their respective project developments and are not distracted by cryptocurrency and macroeconomic factors. Grayscale recently launched the Bittensor Trust, aiming to replicate its 2013 successful model for Bitcoin. This move marks Grayscale's hope to enable more investors to participate more easily in the Bittensor and Yuma ecosystems through this trust product. Grayscale’s goal is to allow investors who are unfamiliar with or care about staking, exchanges or Uniswap pools to bet on what they believe might become the next Amazon project on the Smart World Wide Web.

Our investment strategies are mainly focused on infrastructure construction, subnet tokens and investment in TAO itself. It is not usually supported for projects that try to create corporate value for equity holders and token holders, but instead focuses on building the Bittensor ecosystem. Specifically, we are looking for infrastructure projects similar to Coinbase, BitGo and Chainalysis to drive the growth of Bittensor. We have launched an accelerator to help those interested in establishing subnets start projects and inspire smart talents from around the world to participate in the competition. In addition, users with TAO can pledge them on the Yuma platform.

Q: How is Bittensor different from Bitcoin mining?

Barry: There are significant differences in economic incentive mechanisms between Bittensor and Bitcoin mining. The Bitcoin network distributes approximately $12 billion in rewards to miners every year to maintain network security. However, Bittensor uses these economic incentives to pay for computing providers, model owners, and data owners, similar to the operation of network infrastructure. Under the current TAO price, there is about $500 million in the Bittensor network for all parties to compete. As the TAO price rises, this amount may increase to $1 billion, $5 billion or even $10 billion. This incentive not only attracts big businesses, but also graduate students in dormitories, all struggling to find the best ways to contribute to the Bittensor network. This model creates strong economic motivation for all kinds of participants to promote the development and innovation of the network.

Q: How does Bittensor deal with the fact that AI costs are close to zero?

Barry: Looking back, accessing the Internet through America Online and Prodigy was the norm until the launch of the browser allowed users to get the same service for free. Today, Bittensor is redefining this pattern by providing cheaper and faster computing, model and data access. Its open design allows access to anyone around the world, balancing the playing field. This innovation will enable companies like Uber, Airbnb, TikTok to rise on the Internet, similar to businesses that were unimaginable in 1995.

Bittensor eliminates single point of failure issues such as OpenAI or Meta's API limitations, while providing redundancy and scalability. More importantly, it is open to access without restriction, without censorship, similar to the information-based World Wide Web. Teams need to think about how to leverage this generated intelligence to pay bills and monetize them. 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 future development of business models.

Q: What do you think Bittensor will develop in the future?

Barry: The boldest prediction I can make about Bittensor is that Bittensor could become a better version of Bitcoin as a global store of value. The Bitcoin network costs $1 billion to $1.2 billion a year to maintain its security, and Bittensor has proposed a new vision: to use this funding to inspire a global problem-solving network to encourage people to find solutions to major world problems. Imagine what innovation and change would be brought about if these funds increased from $1 billion to $2 billion, $5 billion or even $10 billion. While it is valuable to provide security for the Bitcoin network, Bittensor shows great potential with its token economics as Bitcoin, including halving mechanisms and decentralization.

But I think Bittensor has the kind of religious sense of early Bitcoin adopters, but unlike Bitcoin, it is not about creating digital gold, decentralized currencies or removing government control over the wallet. Instead, Bittensor aims to help solve major problems by leveraging global intelligence.

It feels that the future of the Internet is large-scale intelligence, while Bittensor is exploring this kind of intelligent decentralized application. 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 incentives, and any matter that requires people to surround competition can be utilized. Although Bittensor's applications are currently mainly concentrated in the field of AI, its potential uses are still unclear. It provides incentives for decentralized work teams to encourage them to conduct activities for others and promote teamwork to form a coordination layer. Meanwhile, Yuma plans to launch product solutions this year, allowing people to directly access subnets.