Breaking Down the Chain: How Blockchain is Disrupting Industries







With the rise of Bitcoin, blockchain has gained much popularity in recent years. In this episode, Atul Rustgi from Accolade Partners joins us to break down the “chain.”  We will discuss how the technology behind cryptocurrencies is disrupting industries from banking to the internet. Hear about some of the many different use cases for blockchain and Atul's opinion on whether cryptocurrencies, like Bitcoin, Dogecoin, or Ethereum, are truly currencies, or something else entirely. Finally, hear how institutions can invest in this disruptive force.


Atul Rustgi

Partner, Accolade Partners

Atul Rustgi is a Partner at Accolade. Prior to joining Accolade in 2007, Atul worked at McKinsey & Co., a leading strategy consulting firm, where he advised senior management on issues of strategy, organization, technology and operations. Before McKinsey, Atul worked at the Robin Hood Foundation, a venture philanthropy that funds and supports innovative poverty-fighting organizations in New York City. Atul holds an M.B.A. from Harvard Business School and a B.B.A. from the University of Michigan.


Greg Dowling

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.


Greg Dowling (00:06):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This shows spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:30):

Today on the FEG Insight Bridge, we are going to tackle one of the most frequently asked client questions of the last few years: What is blockchain and how is it related to Bitcoin? With the recent big moves in Bitcoin, blockchain has also been thrust into the national spotlight. Thankfully, we have an expert. Atul Rustgi from Accolade Partners joins us to "break down the chain." Listen in as we hear about how the technology behind cryptocurrencies is also disrupting industries from banking to the internet. Hear his opinion on whether cryptocurrencies like Bitcoin are truly currencies, or if they're something totally different. And finally, we'll discuss how institutions can participate in this disruptive force.

Greg Dowling (01:17):

Big FEG welcome to Atul Rustgi from Accolade Partners. Would you mind introducing yourself and Accolade?

Atul Rustgi (01:24):

Thank you for having me, I look forward to our conversation. A little bit about me--went to University of Michigan for undergrad. After that, I worked at McKinsey and the Robin Hood Foundation, which is a nonprofit in New York City--both before and after business school--and then joined Accolade Partners about 13 years ago. We at Accolade Partners are a fund of funds. Our investors include endowments, foundations, family offices, and individuals. We pull their capital to invest across the private equity landscape, from venture capital to growth equity and buyout. We're primarily focused on technology and healthcare managers, and more recently have been active in the blockchain space. We've been around 20 years with over 2.5 billion of assets under management. And in terms of blockchain, since that's the topic of this discussion, we got intrigued with regards to blockchain about 3 to 5 years ago, as a couple of our managers started talking about blockchain and started investing in blockchain.

Atul Rustgi (02:10):

And so about 3 to 5 years ago, we just first wanted to understand, "What is blockchain? What are the implications for the venture industry that we invest in?" And thirdly, "What are the implications for us?" So we really took a deep dive over the past 3+ years, talking to over 100 managers in the space and hundreds of entrepreneurs, and really tried to get a grasp and understanding of what blockchain is. And over that time, really built conviction on the disruptive potential that blockchain has and the return potential associated with it. So I'm very excited to talk to you about blockchain.

Greg Dowling (02:40):

Big question for you: What is the difference between blockchain and Bitcoin? Investors hear both of those terms thrown about quite frequently. I'm not sure many of them understand how they're related and how they're different.

Atul Rustgi (02:53):

Maybe I'll try to explain the difference between blockchain and crypto assets broadly, because Bitcoin is a type of crypto asset. So blockchain and crypto are often used interchangeably. The easiest way to think about the difference is blockchain is the underlying technology and crypto assets sit on top. In other words, blockchain is the technology that enables the existence of cryptocurrencies. Blockchain technology is a decentralized database system, which is in contrast to a centralized database, which is the dominant structure today. The decentralized system is what makes it very innovative and disruptive to centralized business models. In the same way online disrupted offline or SaaS disrupted on-premise licensed software, we believe blockchain and the decentralized business model has the potential to disrupt centralized businesses. In some respects, blockchain has the potential to rearchitect the internet, which is pretty sizable, as you know.

Greg Dowling (03:40):

Wow. Let's get into that. So what are these applications for blockchain broadly? And then maybe specifically, talk about web 3.0.

Atul Rustgi (03:48):

A few of the more popular use cases today are decentralized finance, web 3.0, and non-fungible tokens. But before talking about those three areas, the first use case that's getting significant traction, obviously, is Bitcoin today. Bitcoin is use-cased as a store of value, like gold. Bitcoin has a fixed number of coins programmed in its blockchain, therefore it's anti-inflationary in that unlimited coins can't be issued. A few years ago, the only people participating in Bitcoin were blockchain natives. This past year, you saw hedge funds starting to buy Bitcoin, corporations started buying it from their balance sheet, and even financial institutions such as PayPal, Square, Visa, and banks support it. We're finally seeing adoption beyond blockchain natives, which is very exciting.

Atul Rustgi (04:28):

But moving beyond Bitcoin into decentralized finance, or as it's commonly known as DeFi. So what is DeFi? DeFi is an application similar to traditional financial services--such as lending, exchanges, and derivatives--but built on blockchain. By leveraging blockchain technology, these applications provide lower costs and more efficient solutions to end-users by cutting out rent-seeking middlemen. One company is compound, it's in the lending space. In traditional lending, first, it can take days or weeks for a bank to approve a loan with tons of paperwork. Second, banks can take a significant fee for their service. And third, not everybody has access to the loans.

Atul Rustgi (05:04):

With Compound, first, the loans are approved immediately, as they match our borrowers and lenders using collateral. Second, the fee they charge is a fraction of a traditional bank, since they have minimal overhead. And third, anybody can access Compound. In only a few years, Compound has around $5 billion in total value locked up on the platform, it's generating over $350 million of annualized revenues, and actually has a $2 billion market cap. Another company in the lending space within DeFi is Aave. It's generating now over a $100 million of annualized revenue and has a $4 billion market cap. In the decentralized exchange space within DeFi is a company called Uniswap. Uniswap allows traders to trade blockchain assets. It has processed over $100 billion in cumulative trading volume to date, and has about $1 billion in daily trading volume, which is about roughly half of that of Coinbase. Currently it's generating over $1 billion in annualized revenue and has a $7 billion market cap. Most amazing, it has less than 20 employees, whereas Coinbase has over 1,500.

Atul Rustgi (06:02):

Moving to web 3.0. Web 3.0 is any internet application that is decentralized and community-owned. Web 3.0 leverages blockchain so that users get a share of company profits and have governance rights to vote on the strategic direction of a company, which is not possible today in centralized monopolies. Filecoin is a current company that provides decentralized cloud storage. Think Box or Dropbox, but decentralized. Currently, Filecoin has 2.5 exabytes of storage capacity within its network. Some traditional online storage companies only have around 1 exabyte of storage capacity, so this is almost 3 times that. Brave is another good example of a web 3.0 company. It's a decentralized web browser that allows users to protect their data and get paid for watching ads, both of which are in stark contrast to current browsers. And this company has over 25 million active users.

Atul Rustgi (06:52):

One example that doesn't exist today, but that I like to talk about--imagine a decentralized Uber. In the current version of Uber, the company is centralized from its economics to R&D to decision-making. Uber and its employees and its investors take all the economics. Any strategic directions are made by the organization and any upgrades to the system--specifically products and features--can only be initiated by the organization itself. I imagine my experience with Uber is not too dissimilar to others, where when I need a ride, I open both Uber and Lyft apps and pick one based on price and availability. I have no loyalty to either company.

Atul Rustgi (07:24):

In the blockchain version of Uber, for every ride done, the driver and rider get a token. The more rides done, the more tokens they accrue. And that token is valuable for two primary reasons. First, the token gives them a share of the company's profits. So the more tokens one has, the greater share of profits they receive. Second, the token gives them a right on the strategic direction of the company. Imagine when Facebook was determining their privacy policy--which we all know is a point of controversy and tension between Facebook and its users--instead of Mark and his team deciding the policy, the users vote on it. The more tokens one has, the more votes they have. What happens is, the companies effectively become what the users want it to be. Ultimately, the share of profits and the say in governance should lead to more customer loyalty.

Atul Rustgi (08:07):

Beyond the token, given that blockchain is open-source, anybody can build products and services on top of the company with no platform risk. Today, if you have a great idea for Uber, you can't build it because it's a closed system. Today, if you build a company using Facebook API, if Facebook changes their API, your company can vanish overnight. With blockchain, anybody can build on top with no platform risk. If you have a better mapping or payment system, you can build it. And if you find customer traction, you have a legitimate business. Blockchain, because it's open-source, allows for unbated innovation. This should lead to more loyalty by customers because it's a better product. The combination of the token and open-source services should lead to more customer loyalty, bigger companies, and bigger market caps, which is exciting.

Atul Rustgi (08:49):

The last exciting use case right now is something called "non-fungible tokens," or NFTs, as they're commonly called. NFT is an emerging area that's exciting. They're a unique digital asset that can be bought, sold, and traded and whose ownership and provenance can be tracked in the blockchain. NFTs have revolutionized the art and collectible space in a short time. NFTs allow for collectors to become immutable owners of the digital items and other unique assets and can make money from them. For artists, being able to sell digital art directly to a global audience without any auction house or gallery, allows them to keep a significant portion of the profits. And because of their digital nature, artists can even program royalties into their work so that they can receive percentage of sales of profits each time their artwork is sold to a new owner.

Atul Rustgi (09:31):

A few examples. In the digital art space, a company called Rarible is a marketplace for art NFTs and has garnered attention from celebrities like Mark Cuban, Soulja Boy, and Lindsey Lohan. And it's done almost $100 million in sales. Foundation, another digital art marketplace has done $1 million in sales within the first 2 weeks of existence. On the collectible side, I don't know if you've heard of NBA Top Shot, but they sell NBA-licensed NFT collectibles and is on pace to be the fastest growing marketplace ever, having generated over $200 million of gross sales in a short time period. So there are a number of exciting use cases today with real companies with real traction and revenue.

Greg Dowling (10:08):

I love some of those examples. The tokenized Uber really resonated with me. I think we started to define this. I want to define this a little bit more and what blockchain is good at and good for. And maybe what it's not. When you talked about financial transactions, it's great. It's secure. I think that's really important. It's decentralized. You cut out the middleman. You spoke about lending. I imagine it's great for exchanges. A title company--you could replace title searches. But what about financial transactions that have to happen in real time? Isn't this process slow? You can't replace Visa or MasterCard, or can you?

Atul Rustgi (10:46):

So one of the largest challenges is scalability of blockchains, particularly something like Ethereum. For context, Visa processes, 24,000 transactions per second, whereas Ethereum can only process 20 transactions per second. So it's a huge difference. And as with the internet and the shift from on-prem to SaaS, blockchain technology needs to evolve. We believe we'll see protocols like Ethereum scale, similar to how the internet scaled in the early days--think dial-up to 5G to where we are today--with a patchwork of solutions and waves of innovation over time. Ethereum, specifically, is currently undergoing a multi-phase network upgrade called Ethereum 2.0 that, if successful, will scale Ethereum's throughput, by more than 1000x. There are a number of new layer 1 protocols, like Polkadot, Dfinity, Avalanche, and Solana that have recently launched and also promise higher throughput with lower latency.

Atul Rustgi (11:33):

The best engineers in the space are focused on the scalability issue, because it is a real issue, and our managers have backed a number of them. And we hope to see some significant development in the upcoming years. Interestingly enough, despite the poor user experience today, we have seen product market fit for a number of blockchain applications, like the one I mentioned, which is astonishing and speaks to the demand for the technology. But there's no hiding. Scalability is critical to mainstream adoption right now, but there are solutions and teams working on this currently.

Greg Dowling (12:00):

We had talked pre-call about in academia how many classes are now being offered, how many engineers are focused on this space--can you talk a little bit about that? Boy, I remember dial-up and that was pretty slow. And now we stream videos at home. And it happened over a 20, 30-year period. How quick will this take place with blockchain?

Atul Rustgi (12:19):

We believe the evolution will be faster because the technology frameworks and infrastructure is there. So we think the evolution will be much faster. But speaking to your point about the talent, that was one concern we had a number of years ago--are the best engineers and talent, are they focused on this space? And that has been alleviated as we speak today. You look at the top universities, a lot of them have cryptography courses and they're all sold out. Andreessen Horowitz recently had a crypto school that was a raving success. And so now you are seeing some of the best talent, and young talent, that are focused on blockchain and crypto assets from day one. So that's exciting. As someone said, "Follow where the talent's going," and the talent is going to blockchain.

Greg Dowling (12:56):

We're talking about blockchain. And you'd mentioned earlier that Bitcoin is really just an application built off of blockchain. What are your thoughts on Bitcoin? Is it an investment? Is it a currency? What is Bitcoin or any of these other cryptocurrencies?

Atul Rustgi (13:10):

With respect to Bitcoin, its primary purpose is a store of value. It has all the properties you would expect out of a store of value. One, you can transfer it, give and receive value. Two, you can store it, it can be saved or exchanged. And third it's a unit of account, you can price goods and services. As with any store of value, network effects are important. The more people believe in its properties as a store of value, the more reliable it becomes, same with gold. And the price is simply a reflection of that large number of people that believe in its role as a store of value. At some level, it's about supply and demand. As I told you before, the supply is fixed, therefore the more people believe in it, the higher, the demand, the higher the price. To give you a sense of scale, for Bitcoin to achieve gold parity, it has to get close to $300,000. As we know, we've started seeing hedge funds and corporations starting to buy Bitcoin. Given the supply constraints, imagine what happens to the price when a country decides to put 1% of its reserves in Bitcoin. One can make a case that it can go way beyond $300,000.

Greg Dowling (14:05):

I guess the counterargument to that would be that... I've heard it's to say, "Hey, look, this is digital gold." And I think the difference between Bitcoin and gold is you can't create more gold or different gold, but I could always create a new token. I could create a new currency. Even though you can't create more Bitcoin, I could create Gregcoin.

Atul Rustgi (14:24):

Yes [laughs].

Greg Dowling (14:25):

And Gregcoin could take off. So how do you speak to that argument?

Atul Rustgi (14:28):

Technically anybody can create their own coin or token, just like anybody can create their own company. But at the end of the day, they need to achieve product/market fit and gain customer traction. Bitcoin was the first mover for store of value and it's network effects matter, which it seems to have achieved to date. Ethereum--the same point--had a first-mover advantage with smart contracts and has strong network effects given its developer traction. Despite that, there are competitors. As I mentioned, Polkadot, Dfinity, Avalanche, and Solana are out there challenging Ethereum, but they have yet to achieve the network effects Ethereum has. So yes, anybody can create a token. Anybody can create a competing project or company. But at the end of the day, they need to find product/market fit and they need to gain customer traction. And for the use case of store of value, Bitcoin seems to have achieved that.

Greg Dowling (15:11):

Now going more on the con side here a little bit, if I took my digital wallet out, it may make incredible sense for me to go and buy a Tesla with Bitcoin--and you can do that right now--I'm not so sure it makes a ton of sense for me to buy a Starbucks coffee or hail an Uber. I believe they are taxed as investments and not currencies. And so I may pay more in transaction fees and capital gains tax than I would for my cup of coffee that I'm enjoying. Does that inhibit it being a true store value? Or maybe it's a store value, but not really a currency?

Atul Rustgi (15:44):

So the IRS does treat Bitcoin and other digital currencies as capital assets, which means they're taxed like stocks. Frankly, Bitcoin and other digital currencies are not great cash equivalents at the moment, due to the volatility and tax consequences. What's emerged is... Stablecoins have emerged as a great transactional alternative. Stablecoins are digital assets. They're pegged one-to-one against a reserve currency, such as the U.S. Dollar. There are actually over $45 billion worth of Stablecoins in circulation. There's one called USDC, which is a pretty popular Stablecoin, backed one-to-one to dollars held in reserves. I think there are about 7 billion in circulation today, with over 400 transferred on chain. So when you think about Bitcoin, they're more of a store of value, less a currency.

Greg Dowling (16:25):

Does that change over time, do you think? Or is that always really what it's going to be?

Atul Rustgi (16:28):

I think at this point, Bitcoin is a monetary asset. It's unlikely to challenge the U.S. dollar as a means of exchange. Bitcoin has prioritized security as part of its blockchain, so it's too slow to be a currency. Bitcoin will earn its place, we believe, alongside gold as a compelling store of value, also a hedge against inflation. There are other companies out there that we think can be used as payments, such as Celo and Facebook's Libra initiative. They share more similarities in terms of use cases with currencies. But Bitcoin, at least the current belief is it's going to be more of a store of value, less so as a currency.

Greg Dowling (17:00):

And if you view it that way, I suppose I'm not going to take a bar of gold and go buy a cappuccino either, right? So it's probably more akin to that.

Atul Rustgi (17:08):

Yeah. I mean, I know Tesla is going to allow you to buy cars with Bitcoins. Maybe one coin can buy you a car. But for smaller transactions, higher volume transactions, Bitcoin is not the best instrument to use.

Greg Dowling (17:20):

You mentioned Facebook and we're talking about Stablecoins. What is the risk in regulation, or just risk that more and more central banks issue their own cryptocurrencies? Do these exist outside of it? Or do they get drowned out by the governments?

Atul Rustgi (17:35):

In regards to regulation, as with any new technology, there's a balance between innovation and regulation. At least the U.S. regulators have made it clear that they don't want to suppress innovation around blockchain, but rather protect consumers, curtail illegal activity, and make sure security laws are upheld. The SEC has made it clear what is a security and what is not, and companies are following those guidelines. The SEC has made it clear that exchanges need to know their customers and exchanges are adhering to that. In some respects, the blockchain community and regulators are working together. Several of our managers are working closely with organizations like the Blockchain Association to influence policy. And it's great to have advocates like Andreessen Horowitz's Katie Haun, who is a former federal prosecutor with the DOJ, around the table.

Atul Rustgi (18:15):

Generally we believe increased regulatory guidance will be positive for the sector as a whole. To give you some specifics, the DOJ released a report last year that said, "Cryptocurrency is a technology that could fundamentally transform how human beings interact and how we organize society." I'd never heard of the DOJ putting out such rave commentary on such a technology. And this year, the St. Louis Fed released a report that said, "Defi," again, decentralized finance, "offers exciting opportunities and has the potential to create truly open, transparent, and immutable financial infrastructure. DeFi may lead to a paradigm shift in the financial industry and potentially contribute to a more robust, open, and transparent financial infrastructure. DeFi has unleashed a wave of innovation. On one hand, developers are using smart contracts and the decentralized sediment layer to create trustless versions of financial instruments. On the other hand, they're creating entirely new financial instruments that cannot be realized without the underlying public blockchain." Again, those are pretty positive comments by the regulators. So overall, many of the regulatory risks that existed years ago have been mitigated. And we think it's going to be more supportive going forward.

Greg Dowling (19:24):

You mentioned a bunch of U.S. agencies. How does this translate internationally? How does China feel about Bitcoin or just cryptocurrencies?

Atul Rustgi (19:32):

Well China's made it one of their national imperatives. In fact, they're trying to digitize their own currency. So for China, blockchain is a priority, and we think that also is a catalyst for other countries to also be supportive of it, because one way or the other China's pushing forward on this.

Greg Dowling (19:46):

Isn't digitalizing your currency very different than using blockchain?

Atul Rustgi (19:49):

Yeah. So still it will be centralized, but they want to at least move in that step of digitizing their currency. But broadly speaking, China has been supportive of blockchain.

Greg Dowling (19:58):

Any other countries? You have the U.S., you have China, any other countries you're seeing kind of being leaders in this area? Or is it just like most venture in the world, You have U.S., China, and maybe a little India, but those three.

Atul Rustgi (20:08):

The U.S. is where a lot of the action is right now, with the number of companies being started here. So people are looking towards the U.S. for guidance and leadership. And it's nice to see that the U.S. has been very supportive, but even other areas like Europe and others have been supportive here.

Greg Dowling (20:21):

What are the other risks out there besides just regulatory risks that you see as impacting either blockchain, or-- really here we're talking about cryptocurrencies.

Atul Rustgi (20:29):

So there's nothing inherently risky about decentralized database systems. The risks are similar to any other innovative business model, from business model risks to regulation. A unique risk to blockchain companies is the volatility of their tokens, given that they're liquid. Blockchain companies, from a business model perspective, have risk like any other startup. The risks include product/market fit, go-to-market strategy. These companies need to find the right founding team with investors advising them, and the appropriate strategy. Investing in startups generally is a high-risk proposition. But hopefully that comes with the potential of higher returns. One unique risk in blockchain companies is the volatility. Startups are inherently risky, but since blockchain companies release their tokens and are publicly traded earlier in their lifecycle to enable their decentralized business model, many times in the first few years, these tokens can and do exhibit volatility.

Atul Rustgi (21:17):

Traditional startups are equally volatile, but fortunately, from an investor perspective, their equity, which is equivalent to the token, is illiquid and therefore doesn't move in price on a minute-by-minute basis like traditional stocks or a blockchain token can. On the flip side, given the transparency of these open-source, decentralized projects, their progress and traction are far more transparent and readily available than for a traditional VC-backed equity company. This allows blockchain managers to rebalance and adjust their portfolios real-time based on the actual progress of their companies. This is a feature that's unavailable in traditional VC, who may hold their underperforming companies and their portfolios for years. So the one unique risk here is volatility. And that's directly a result of the fact that blockchain companies release a token in their early years to enable their decentralized business model.

Greg Dowling (22:03):

You invest, or Accolade invests across the ecosystem of blockchain. Do you prefer blockchain technology over, say, Bitcoin? How should investors think about this space? If they only have so much to invest, where should they focus their attention?

Atul Rustgi (22:18):

So obviously this is not investment advice, but I think everybody should have some allocation of blockchain. I think it's a unique moment in time, where there is significant upside in a technology that's potentially very revolutionary at a bare minimum. You know, you, you can buy some Bitcoin and Ethereum. Those are the stalwarts in the industry and I think they have very significant upside. But those are two use cases out of potential hundreds and thousands. I mentioned others--DeFi, NFTs, web 3.0--and if one has the ability to get a more diversified, broader portfolio, I think one should. And interestingly enough, when you look at the industry today, some of the other areas like DeFi may have had greater returnsthan even Bitcoin and Ethereum. And so if you're really looking for outside returns, I think one should at bare minimum have some Bitcoin and Ethereum, but ideally have a broader exposure to some of these other areas that I mentioned.

Atul Rustgi (23:08):

And overall, again, we're very excited about this. We think this looks a lot like what venture did in the mid-1990s, where there were some really outsized returns in the asset class. And as I mentioned before, this is like online disrupting offline, SaaS disrupting perpetual licensed software. And as I mentioned before, in some respects, this is rearchitecting the whole internet. There's tons of greenfield opportunity with a lot of inefficiencies, and that's a great combination for generating outsized returns.

Greg Dowling (23:31):

So can you like blockchain and not like Bitcoin?

Atul Rustgi (23:35):

I think you have to like them together. Because blockchain is the first project, first one out there that has product/market fit, we believe that if blockchain does well, Bitcoin will do well too. But we do believe there are other areas that can outperform Bitcoin. It's hard to believe that one can do well without the other, they're almost tied together right now.

Greg Dowling (23:52):

A little bit inside baseball here. People talk about "mining the chain," "mining a coin." How does that work? And I always hear that people never talk about some of the ESG aspects of this. They require a huge amount of computing power and it's bad for the environment. Is that a bridge too far? Maybe talk a little bit about what is mining and then is it bad for the environment?

Atul Rustgi (24:15):

Miners are those that facilitate the whole network. They're the ones who keep a record of all the transactions that occur. They're the ones who help facilitate all the transactions. So miners are very essential to this and the more miners and nodes there are out there, the more decentralized a project or company can be. So they're very critical to the overall functioning of blockchain. In terms of ESG, I think where that has really come up has been primarily around Bitcoin. And given that Bitcoin prioritizes security, it does need a significant amount of energy and power to process it. As you look at other blockchain projects out there, they are much more environmentally reasonable and efficient, so they don't require any work close to what Bitcoin needs to operate. From an ESG perspective, they are much more reasonable and cost-effective and energy efficient. I think a lot of the ESG issues arose primarily around Bitcoin because of its significant energy needs to enable security in its system.

Greg Dowling (25:11):

Is that because it's so large? Or is the code different than a code for another coin?

Atul Rustgi (25:19):

There are different ways to mine, from traditional mining to staking. In staking, you don't need as many nodes or participants to validate transactions, so it's much more energy efficient. Bitcoin, because you want every node to have a full history of the chain, is just much more power-intensive than other projects out there, which, again, is also a big reason why Bitcoin is slower, because of the security needs. Other projects out there had made it much more scale, or much more efficient than Bitcoin and therefore lower energy needs.

Greg Dowling (25:48):

Has anybody actually figured out who Satoshi Nakamoto really is? There's this mystery person that created the blockchain, do we even know who it is?

Atul Rustgi (25:58):

Unfortunately, nobody knows who he or she is. It would be interesting if there ever was a reveal, but at the moment, unfortunately, nobody knows who this person is.

Greg Dowling (26:06):

Does it matter if no one knows who this person is? Don't we need to know?

Atul Rustgi (26:09):

It doesn't because Bitcoin is an open-source, decentralized project out there, and no one person is that vitally important. So he or she, again, was revolutionary in putting out his or her white paper on this and created Bitcoin. But at this point, more than anything, he or she owns just a large sum of Bitcoin, but they're not critical at all to the operation or functioning of the system.

Greg Dowling (26:30):

For the record, it is not you, correct?

Atul Rustgi (26:32):

It is not me. I wish I was. If it was me, I wouldn't be here talking to you [laughs].

Greg Dowling (26:37):

Has anybody calculated the gains that he or she should have--whoever this person is? They've got to be, maybe not a billionaire, but probably close.

Atul Rustgi (26:44):

Oh no, no. He or she would be multiple billionaire.

Greg Dowling (26:47):

Multiple billionaire. Wow, that's fascinating. So a couple more questions on how investors can educate themselves, but then also how do they technically invest. It's one thing to be like, "Hey, I want to invest in blockchain." And then it's another thing to actually be able to trade it, custody it. What are some great books or resources that people that want to learn more can turn to?

Atul Rustgi (27:08):

A few resources that people can use--and I've mentioned this from a few times--Andreessen Horowitz has a great library of videos that they actually use for their crypto school that they have published. That's one great area that one can go to, to really learn about blockchain and its development. And then there are just a number of podcasts out there that people can access. Unfortunately there's a wealth of information out there and blockchain, as I describe it, is a rabbit hole. The more questions you get answered, the more questions you have, and there's just a wealth... But as a starting point, I would use Andreessen Horowitz's crypto school, it's online, you can search it. There's just some great videos on describing what blockchain is, what the use cases are, the business models, and how to start a blockchain company.

Greg Dowling (27:51):

So taking that next step--you've learned about it, you're ready to make the leap--how do you invest? Does your $5 million or $10 million investment all go on a thumb drive that you can lose. How do you secure this? How do you trade it? Any thoughts on that?

Atul Rustgi (28:03):

Yeah. So very simply put, you can open an account on some of the exchanges, Coinbase being one, but there are a few others. It's very easy to open an account. You transfer money and you can buy and sell--not just Bitcoin, but a number of assets on their platform. It's a very secure system. I believe the number is around 98% is cold storage. Your ownership of a coin is actually a key. It's a number of digits strung together. That is your ownership of a coin. If you lose that key, you lose ownership. So what Coinbase does is actually, they use cold storage, as they call it, which means they take the key, take it offline and actually store it physically. So it's a very secure way to own and custody your assets. There are a lot of other exchanges out there, even beyond Coinbase. There are other wallets out there that you can use. And security has gone pretty far there, so you should feel more secure today than you would have been three, five years ago. So at the simplest level, just open an account on any of these exchanges and you can transfer money and start trading.

Greg Dowling (28:56):

These are really pretty secure? Because back in the day--actually it's not that far back in the day, but a few years ago, even though blockchain is very secure, these exchanges were hacked.

Atul Rustgi (29:06):

Right, and so now with cold storage, some of that is prevented with companies like Coinbase. So the chances of that are much lower today. You could also take the key yourself and take it offline and put on a USB drive or a hard drive. Obviously there's risks that you don't lose those. You can either rely on somebody like Coinbase to cold storage it, or you can do it yourself. And then if you had the ability to do more than just an exchange, obviously there are a number of private funds out there that you can invest in that would give you access to not only the assets that are on Coinbase and other exchanges, but even more than that in terms of private companies.

Greg Dowling (29:40):

Gotcha. And even some of the more traditional institutional service providers are moving into this space. I mean, BNY Mellon has moved in there, Fidelity has moved in there. There's still more that haven't, but I would expect that they would move that way over time.

Atul Rustgi (29:54):

In fact, if you compare the market today versus where it was in 2017 and 18, it's come a long way in terms of the infrastructure capable of supporting institutional clients. Businesses like Anchorage, which is a custody solution. Talos provides APIs to connect companies using a payments platform to banks. There's a company called BitGo, which is a Bitcoin wallet service, and even River Financial, which is a brokerage. And as I mentioned, exchanges like Coinbase and others. All of these are built to serve institutional clients, offering full-stack services. And as you've read yourself, institutions like Citi, BlackRock, JP Morgan, Goldman Sachs, and MassMutual have all embraced and recognized crypto. And we expect institutional adoption to accelerate this year and going forward, beyond Bitcoin to other assets.

Greg Dowling (30:36):

Couple of last questions for you. I've heard some crazy, crazy stories surrounding Bitcoin, blockchain, the gentleman who lost his thumb drive and bought a landfill to look for it. What's the craziest story that you know in this space?

Atul Rustgi (30:52):

I forget what the exact numbers are, but I did hear a story of somebody paying for their pizza like 3, 5 years ago with Bitcoin. And as you know, pizza can cost $10 to $20. Whatever amount he or she gave for that pizza, I heard numbers that it's worth thousands of dollars today.

Greg Dowling (31:07):


Atul Rustgi (31:08):

That person should have kept the Bitcoin and just paid cash instead [laughs].

Greg Dowling (31:11):

All right. Last one here. Give me a prediction, give me some sort of bold prediction that maybe sounds a little outlandish but you think that it has a better-than-average probability of actually occurring. So either the usage or a use case--give me your best prediction.

Atul Rustgi (31:28):

So I'm not going to get specific numbers, but obviously I've drunk the Kool-Aid and I'm pretty--and we as a firm are pretty bullish on this. I do believe that this is the next huge wave of innovation. It's revolutionary. I do think a lot of the centralized business models that exist out there today will be disrupted by blockchain companies. And so I think that this is going to be really big. I'm very bullish on where Bitcoin and Ethereum can go, very bullish on the amount of disruption that we'll see in the financial industries and other areas. I think in 5, 10 years from now, we'll be talking about blockchain in the same way we look back to the internet in the mid-1990s. If you and I remember--what could we do? You could chat on AOL and you could buy a book or two on Amazon. Nobody had the foresight to see how pervasive and ubiquitous the internet would be. Nobody could have imagined the iPhone or apps alongside of that. I think this is going to be as revolutionary and maybe even bigger as the internet was 20+ years ago.

Greg Dowling (32:23):

All right. Well, you heard it here first. Thank you very much for your time today and thank you for helping us break down the chain.

Atul Rustgi (32:29):

Thank you for having me.

Greg Dowling (32:30):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant FEG publications. And don't forget to subscribe to our communications at so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.

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