A lot of the people who were early to bitcoin may not be the right people to ask for advice now. They were mostly drawn to bitcoin for its decentralization that promised a world of small government. I think the zealots often have a pretty clouded vision about the more far-reaching consequences of the blockchain.
Over the past few years, the Cryptocurrency industry has been making headlines nearly every week. Many people have gotten very wealthy investing or leading the cryptocurrency industry. At the same time, many people have lost a lot investing in the industry. In addition, more people have been scrutinizing the ecological impact of crypto mining, as well as its potential facilitation of illegal activity. What is being done and what can be done to address these concerns?
In this interview series called “5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency” we are talking to leaders in the cryptocurrency industry, as well as successful investors, who share insights from their experience about how to successfully invest in Cryptocurrency.
As a part of this series, I had the pleasure of interviewing Jan Szilagyi.
Jan spent most of his career managing global macro strategies, starting with Stan Druckenmiller at Duquesne Capital, and most recently as Co-CIO at Lombard Odier Investment Managers in New York. He is now the CEO of TOGGLE, a financial technology platform built and used while he and his co-founder were actively managing global macro portfolios. Jan graduated Phi Beta Kappa from Yale with a degree in mathematics, and completed his PhD at Harvard under Ken Rogoff in international finance.
Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit. Can you tell us a little about your backstory and how you grew up?
My parents were Slovenian (mom) and Hungarian (dad) and I grew up in Slovenia. I was very keen to explore the world and somehow it got it into my head that I wanted to study abroad. I applied to a few schools in the US and eventually ended up at Yale University. For someone like me, the range of topics you could study at a liberal arts school was really exciting. It was like an academic all-you-can-eat buffet. I eventually narrowed my interests down to mathematics and some graduate courses in mathematical economics, but not before taking some fascinating courses in European history, Italian literature, experimental physics and so on.
Is there a particular story that inspired you to pursue your particular career path? We’d love to hear it.
My college roommate’s father worked at Duquesne Capital, a prominent New York hedge fund and he invited me to meet his boss, Stanley Druckenmiller. I was in Boston at the time, just starting a PhD in Economics at Harvard. I met with Stan at the Duquesne Capital offices for what seemed like 5 minutes. I can’t remember what we talked about but I did not leave thinking I had nailed it. I started walking home and five blocks later, I received a call –I was hired. I dropped out of Harvard the following Monday and haven’t looked back since.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
There have been a number of people who have had an influence on my professional career. In graduate school, Professors Ken Rogoff, John Campbell and Andrei Shleifer advised my PhD thesis and dedicated enormous amounts of time to my research. We used to have calls even on Saturdays and Sundays — not the norm in academia. Prof. Shleifer and I would go for long runs along the Charles river to discuss the thornier issues that would come up. Similarly, Stan Druckenmiller took a chance on me when I had nothing but a fancy school pedigree. He gave me a start in the industry and supported me at a number of critical points in my career, including most recently when we started TOGGLE. He was the first to offer encouragement to take the plunge, and ultimately financially backed the endeavor as well.
Ok super. Thank you for all that. Let’s now shift to the main focus of our interview. The cryptocurrency industry seems extremely dynamic right now. What are the 3 things in particular that most excite you about the industry? If you can, please share a story or example for each.
Probably the single most exciting development that came out of blockchain innovation was that it shed a light on the plumbing in finance, and how badly in need of refurbishment it was. The Distributed Ledger Technology (DLT), of which the blockchain technology is the best known example, has the potential to upend finance, and other industries as well. It could be the biggest change since Luca Pacioli, the 15th century Franciscan friar who transformed banking by publishing his work on double-entry bookkeeping. DLT could be a viable and sustainable solution to underpin the complete securities trade cycle (i.e. trading, clearing, and settlement) and make it not only instantaneous, but virtually impregnable to errors or ambiguities.
Of course, this may be a hopelessly obscure corner of plumbing that readers will understandably have a hard time getting excited about. The more visible impact from the industry also includes a reimagining of the meaning of currency, as well as a whole host of exciting new startups that have used DLT for everything from money transfers to tracking logistical chains in the fishing and farming industry.
What are the 3 things that concern you about the industry? Can you explain? What can be done to address those concerns?
The cryptocurrency industry has been reluctant to adopt more regulation and transparency, in part because many of the early adopters found appeal in Bitcoin’s decentralized nature. This has helped perpetuate the myth that it is somehow ideal ground for criminal transactions. It isn’t. Bitcoin may be anonymous but it’s not untrackable. The hardest thing to trace reliably is still physical cash.
The environmental impact of crypto mining also hasn’t been fully appreciated and internalized by all those who are keen to see wider digital currency adoption. Like any potential public good, we need full transparency on the positives, as well as the negatives, before declaring that it actually is a “good.”
What are the “myths” that you would like to dispel about cryptocurrency? Can you explain what you mean?
The idea that cryptocurrency is somehow making criminals’ jobs easier. If you are trying to be unavoided, not traced, cash is still king. 100 dollars bills are not going away even if movies now prefer to feature bitcoin transactions on the Dark Web.
How do you think cryptocurrency has the potential to help society in the future?
Probably the single largest benefit is “restoration of trust.” This may seem like a highfalutin thing to say but blockchain is, in essence, a shared, trusted, public ledger that everyone can inspect, but which no single user controls. Blockchain adoption is bad for anyone in the “trust business.” Examples are banks, clearing houses and government authorities. Given the decline of trust in governments and banks in recent years, bringing more scrutiny and transparency into banking and government bureaucracy would seem like a good thing. It creates an alternative to these institutions, and competition — for all its shortcomings — historically leads to better outcomes. It will disintermediate bad apples and lead others to improve.
Recently, more people have been scrutinizing the ecological impact of crypto mining. From your perspective, can you explain to our readers why the cryptocurrency industry is creating an environmental challenge?
Let’s start with some numbers. Bitcoin-mining operations worldwide now use energy at the rate of nearly a hundred and twenty terawatt-hours per year.his equates to the annual domestic electricity consumption of the entire nation of Sweden. A single bitcoin transaction uses the same amount of power that the average American household consumes in a month. So the numbers are staggering.
But why? It doesn’t seem like Bitcoin should require enormous amounts of electricity. All you have to do is point and click, or tap on your smartphone to execute a transaction. Existing electronic networks have done conceptually similar things for decades.
The fault lies with Bitcoin’s decentralized structure.To verify transactions, Bitcoin requires computers to solve ever more complex math problems. Computers globally compete to get there first. The fastest computer not only certifies the transaction, but it also gets a small reward for its trouble in the form of a Bitcoin payment.
In the early days, this process didn’t consume nation-state amounts of electricity. But it’s inherent to cryptocurrency’s technology for the math puzzles to become much, much harder as more people compete to solve them — and this dynamic will only accelerate as more people attempt to buy into Bitcoin.
From your perspective what can be done to address or correct these concerns?
There are many solutions that have been floated — renewable energy, carbon credits, switching from proof-of-work to proof-of-stake, and so on, but none of them are entirely satisfactory.
Recently, more people have been scrutinizing cryptocurrency’s impact on illegal activity. From your perspective, can you explain to our readers why cryptocurrency, more than fiat currency, is seen as an attractive choice for criminals?
It’s actually not as clear of a choice. Fiat currency is inherently both anonymous and untraceable. Bitcoin is only anonymous, but it isn’t untraceable. The reason bitcoin may be preferred for some illegal activity is that it doesn’t require in-person interactions, while fiat currency does. Obviously, sending currency via the banking system negates the benefits of untraceability.
Ok, fantastic. Here is the main question of our interview. What are “The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency?” (Please share a story or example for each.)
- The most important thing to understand is that the real innovation here is the infrastructure, not the currency. That’s not to deny that a lot of money has been made in trading the actual currencies but I think orders of magnitude larger wealth will be created by understanding the implications of the Distributed Ledger Technology.
- Second, a lot of the people who were early to bitcoin may not be the right people to ask for advice now. They were mostly drawn to bitcoin for its decentralization that promised a world of small government. I think the zealots often have a pretty clouded vision about the more far-reaching consequences of the blockchain.
- Finally, I think it’s quite possible that the digital coin we will eventually use may not even have been invented yet. It’s a powerful idea but the implementation can have externalities we are only beginning to understand: energy consumption in the case of bitcoin, fraud and hacking of crypto wallets, traceability vs. anonymity etc.
What are the most common mistakes you have seen people make when they enter the industry? What can be done to avoid that?
The most common one seems to be “momentum chasing” — buying into the hype before you really understand what the so-called revolution is really about, and its implications. For many, buying dogecoin or ethereum may seem like they’re participating in the blockchain revolution when in fact these are likely just ripples on the tidal wave of innovation.
Do you have a particular type of cryptocurrency that you are excited about? We’d love to hear why.
Thank you so much for these excellent stories and insights. We wish you continued success and good health!