Chat with Steve Dakh, co-founder of cryptocurrency Ethereum & creator of the KryptoKit Wallet
Dr. Erin here. I’m excited to post a really intriguing conversation I had here in New York City with Steve Dakh, one of the co-founders of the blockchain Ethereum, as well as one of the creators of KryptoKit, a wallet for cryptocurrencies. Steve is the horse’s mouth when it comes to crypto: He knows everything about blockchains and cryptocurrencies, which was refreshing. Most of my friends, even those who invested large sums of money in crypto, don’t “really” know what it is, which is kinda scary and kinda dumb. Since financial wellness is a huge part of wellness, I figured, let’s do a piece on crypto! An interesting side bit, I’ve known Steve for years, since he was 17. We “met” on a website (the name of which I won’t disclose, because it’s embarrassing) and kept chatting all of these years. I heard about his adventures at Valley Forge Military Academy, where he had the same Brigade Tactical Officer as I did when I was a cadet at West Point; heard about his driveway being swarmed by FBI agents when he hacked into his high school database; and heard about the time he hacked into a prestigious banking system. I always said he was super intelligent and would do something super amazing or super infamous. (Maybe both 😉 ) Well, it looks like he is doing something amazing. He just moved to NYC with his wife, so this interview is the first time we’ve met in person. And yes, he looks like his photos.
Can you talk about your background and how you found your way to crypto?
Steve: I have been programming my whole life, since I was 6 years old. As soon as I was able to work as a programmer, I did. I was working for Merrill Lynch when I was 18, and then just kept working at tech companies. In March, 2011, when I was working for a web hosting company, a friend of mine sent a link to an article about Bitcoin. I never heard of it before then. I read the article, and I thought it was really crazy. Digital money that is stored on your computer and there’s no central authority holding the balance…how the hell does that work? I was pretty skeptical at first, so I went on the informational sites. I read the white paper by Satoshi Nakamoto, who created Bitcoin, and I read all the technical and was like, “Oh shit. This really does work. This is like a revolution. He’s coded something that has never been done before.”
So I got extremely interested in it. I started mining Bitcoin in March 2011, and I mined till about June. At the time, there were only a few ways you could buy Bitcoin. The main exchange site got hacked, and the price had just reached 35$ and then went down to a dollar. I said, “Fuck this, I don’t want to keep mining.” I had built a computer, had it completely open on my kitchen table, and the fans were all running, and it was extremely hot and loud…and only making a dollar a day, for the entire day running. It was infinitely wasteful. The electricity cost was more than I was making in Bitcoin. So I stopped mining, but kept following Bitcoin for a few years after that. The price kept staying around the 1 dollar mark, and then it finally reached the 5 dollar mark, and when it hit around 13$, I started getting excited again. I made a Facebook post in January, 2013: “Buy Bitcoin now, Get rich soon.” I bought a bunch of Bitcoin. I had just quit working for another company ( he was working as the technical officer for Mike the Situation from Jersey Shore) and started involving myself in the cryptospace again and learning all I could about the tools and software libraries that were built since I last got into it. Then the price went up to 40 bucks, and it was high enough for me to dedicate my current time to cryptocurrency. I made a Redditt Post: “I’m a software engineer and looking for a business partner….a marketing type business person who can work with me in this space.” A few people hit me up, and this one guy, Anthony, messaged me and said, “Let’s skype right now.” I got on the call with him and we came up with this idea for a Bitcoin game. We built that game, and it was very successful. Then I came up with idea for making a Bitcoin wallet that operates inside Chrome. We worked on that together, and then a month later we met at the Vegas Bitcoin Conference and had a whole booth for the wallet “Kryptokit.”
What can a Bitcoin wallet do and how is that different than Coinbase?
Steve: A wallet is for storing crypto and for sending and receiving it. Coinbase is not an exchange. It operates as one, but an actual exchange is like a Forex exchange and when people want to buy or sell, they trade with each other. The Coinbase website, itself, is not an exchange. You just buy at the price they are offering, but they actually own an exchange call GDAX.
So you were in Vegas at this conference…how did you get involved with creating Ethereum?
Steve: So I was in Vegas, we released the wallet App, a lot of people really liked it…and for the second time I met Vitalik Buterin , who is the main founder and the person who conceptualized Ethereum. My business partner Anthony was from Toronto, Vitalik was from Toronto and they knew each other. Anthony came up to me and said, “Yo, Vitalik has this idea for creating a new blockchain. I want him to run it by you before I decide if I’m interested or not.”
For people who know nothing, can you briefly define Blockchain?
Steve: It’s a decentralized ledger of transactions. It’s a decentralized database that is not controlled by any company or group. It’s immutable. It runs on tens of thousands of computers around the world and, the transactions are all verified independently by every miner and everyone on the network. The miners mine cryptocurrency in order to be able to prove what the next block of transactions should look like. Is that a good explanation?
Not bad. If you had to define cryptocurrency for morons, and the majority of people are morons when it comes to crypto, what would be your elevator pitch?
Steve: Cryptocurrency is digital gold. Each Bitcoin is divisible by 100 million times and it’s easily transferrable over the internet. It’s easy to verify that it actually is a Bitcoin.
But I can’t hold it in my hand.
Steve: You can’t hold it in your hand, but what you can hold is a wallet. A Bitcoin wallet has a private key that is a very, very long number that is impossible to guess. You store that number in your wallet App, and any time you want to send money out of your Bitcoin wallet, that number is able to create a digital signature to prove that you actually own that address, without having to give away that private number to the world. So Bitcoin is like digital gold, because it’s not Fiat. It’s not government currency. No one is backing it. It’s like a commodity. There’s only a certain amount. There will only ever be 21 million Bitcoin, and currently there’s around 18 million.
Steve: Because that’s how the creator of Bitcoin designed Bitcoin.
Let’s jump to Ethereum, because I know you are a co-founder…
Steve: Ethereum is divisible by a lot more than Bitcoin and has a lot more decimal places. The difference between Ethereum and Bitcoin is this: The only thing you can do on the Bitcoin blockchain is send and receive Bitcoin from one account to another.
So you met Vitalik in Vegas…
Steve: So we were in Vegas and were all sitting in a hot tub together, and Vitalik was telling me how he wanted to build this blockchain that is basically a decentralized computer system- allowing a programming language to be built on top of this Ethereum blockchain and allowing anyone to write whatever software they want. Around this time, there were about 500 different cryptocurrencies, each one was just a copy of Bitcoin. They took the Bitcoin source code ( it’s open source) and just copied and tweaked it. Vitalik’s idea was to create a blockchain that has no use except that you can send cryptocurrency from one person to the next, and there’s no other features built on top of it, except the ability to write any arbitrary code that you want and have it stored on the blockchain. So for example, you could write code for a smart contract. The smart contract could be, for example, a gambling game. So you’d send Ethereum to the contract’s address, and randomly, you’d get twice your money back or none of your money back. You could write the software for it, deploy it on the blockchain, and anybody could look at the code, see that it does what it does and play this game. Another use case…, let’s say you and I want to create a shared account, but we want to limit it so we spend a maximum of 500 dollars a day, unless it’s Wednesday…, you spend this much, or you get a signature from a third party…you can write all these conditionals into the contract and have it deploy on the database. You could create a voting system on a block chain that can’t be hacked. You can create identify systems that can’t be hacked and all these amazing things. So I was hearing this, and had no idea how he was planning on actually building it.
Then it was built…
Steve: I knew Vitalik was really intelligent… and at this time, no one in the world knew about Ethereum except me, Vitalik and Anthony. So what happened…,in January 2014, was the first Miami Bitcoin conference,which happens every year now. We went to Miami… ten of us in a house, and we hashed out what Ethereum would be. We came up with the whole organizational structure, how it would be, how we would do a crowd sale, what the distributions for founding members would be… so we did that. Then Vitalik went on stage for the first time to talk about Ethereum to the public, and he got a massive standing ovation. Everyone was in love with the idea. It was so smart. Rather than creating a blockchain that just does one thing, we have a blockchain that you can build anything on. That’s why Ethereum is number 2 right now.
Good, because I bought Ethereum. But I didn’t realize it was a blockchain.
Steve: Ethereum is a blockchain and Ether is the cryptocurrency. The reason it’s called a blockchain is because there are blocks. Say I send you some Bitcoin. That transaction is in a pending state. It’s not actually confirmed yet. So they sit in a pool where the transactions are cued up. And the miners on the Bitcoin or Ethereum networks see all of these unconfirmed transactions coming in. What happens then is the miners try to solve a cryptographic puzzle…, and when they do, they get to take a group of unconfirmed transactions, solve them and solidify them as a block of transactions that goes on and connects to the last block. So it’s a chain of blocks, and each block has a certain amount of transactions in it… whatever the miner was able to put in. So the block chain is just a decentralized data base of transactions. You can track where all the funds went, since the beginning. If I sent you Bitcoin right now, you’ll be waiting for one of the miners to put those transactions in the block. Once it’s in the block, the transaction is valid, and now you can say for sure that you have those coins. 80% of all the new cryptocurrencies are built on top of Ethereum.
Why would you tell people to invest in Ethereum or Crypto at all?
Steve: I tell people to be careful because, as you see, crypto is volatile.
What’s the volatility from?
Steve: So, the total value of all the cryptocurrencies in the world is high, but not high enough. It’s only under 300 billion. If you look at what goes through the New York Stock exchange in a day, 300 billion is nothing. It’s peanuts. So the hype cycle of cryptocurrency…, when there’s a news story and everyone starts buying, the price has to shoot up, because there’s not enough sellers. I’ve been watching Bitcoin and Ethereum since the beginning, and the price will start to shoot up because of the hype/news, and people get interested in it…and it goes up and up and up, and then something bad happens. Like China bans Bitcoin and the price crashes. But it always crashes at least twice as high as where it last crashed. And then it keeps doing it.
This is the trend you found?
Steve: Yes…some news story is going to come out again and the price is going to shoot up again. Almost all of the fortune 500 companies have Crytpo developers already. Every bank has either builders or researchers researching cryptocurrencies and how they can use them. Every major company. They see the value in it. Like right now, if they want to move money across borders they have to rely on trust- trusting one bank and all these middle men—but cryptocurrency is trust-less. You don’t need to trust anyone. Just trust that the math works. You don’t have to trust anyone.
So big companies, people…all still investing in it?
Steve: Of course. You have to remember that Ethereum right now is at 540. ( At time of interview.) Two Januaries ago, it was only worth 12 bucks. When it first came out, it was worth 25 cents. It’s gone up a lot, and it’s going to keep doing this. I think Ethereum will actually take over and beat the market cap for Bitcoin.
What is Ethereum’s market cap right now?
Steve: So the Bitcoin market cap currently is 160 billion and Ethereum is 54 billion. It’s going to beat it, especially because all the new cryptocurrencies are building off of Ethereum. The more miners using your blockchain, the more secure your blockchain becomes. The miners compete to solve these problems and the competition makes it more likely to be used and secured.
For my readers who don’t know anything about crypto, what’s an easy definition of miner?
Steve: A Bitcoin miner is someone who verifies transactions on the blockchain, and in return they receive a mining reward. It’s like mining gold out of the ground with an axe, except rather than physically hacking away, your computer or hardware is guessing to try to solve the problem…this puzzle.
There aren’t many people who understand this.
Steve: No, not many people at all.
Which probably will work to your advantage.
Steve: Yes. I can explain all the low-level details of how it works, but it’s sound. It’s mathematically sound. It really works. There’s no way the creator of Ethereum can steal someone’s Ethereum, and there’s no way the creator of Bitcoin can change Bitcoin.
Do you think this will become more mainstream?
Steve: Oh yeah, and it already is. All over the world. In Australia, where my wife’s from, they have Bitcoin conferences and have restaurants and stores that accept crypto. In New York, Tokyo…
And you just use your Bitcoin wallet?
Steve: Yep. There are grocery stores here in NY. Restaurants. There are Bitcoin ATMS everywhere. A ton in New York. You can go put some cash in a machine and it will send crypto to the address- the code you have on your wallet.
Do you think this will become the currency of the future?
Steve: Yes. History has shown that government currencies don’t stand the test of time. I think financial systems are in for some shit…
What about regulation?
Steve: So, in order to stop someone from sending a cryptocurrency transaction, you’d have to shut down the entire internet. There’s no way for any country to actually block people from using cryptocurrency or blockchain technology. They could create firewalls, but people will find ways around them.
So you’re saying it can’t be regulated?
Steve: It can be…, New York currently regulates it and has one of the hardest regulations on cryptocurrency. Ben Lawsky created this thing called the BitLicense. So in order to operate in New York…or if you want to work with crypto-customers in New York, even if you are based in another state, you have to get this BitLicense. It costs a ton of money and a ton of paper work… and it’s not for people who want to send or use Bitcoin, it’s just for companies that want to hold other people’s Bitcoins. Like Bitcoin banks. So the only way, right now, that governments can regulate it is by regulating the actual exchanges that are companies and are centralized. So when you use a company like CoinBase, and you’re holding money on Coinbase, you’re not holding your own money. They are holding your money. And now you have a risk- the risk of them getting hacked.
What if I use my own wallet?
Steve: If you use your own wallet, you’re safe. You can download any App, and as long as the keys are stored on the wallet, there’s no way anyone can get in. You’re basically your own bank.
What would you suggest someone uses?
Steve: It depends on how much you’re holding. I recommend if you are holding any more than you’re willing to lose… like if you lost it, you’d be pretty upset…, buy a hardware wallet. A hardware wallet is a device that you plug into your computer, and the device itself has the key stored on it. So if you want to do a transaction, you do it on the computer and then you put it on the device. The device will send the signature to your computer. If your computer is hacked or compromised, they can steal your money. But with a hardware wallet, that won’t happen.
So the governments are screwed?
Steve: They’re screwed. You can even store a code in your head, and that can be your wallet. This opens up all sorts of interesting things. This is out there, but imagine you die and freeze yourself for the future. You can store your password in your head, and no one has access to it. No will ever be able to touch your Bitcoins. Ever! If you never come back to life…that crypto is gone. But if come back to life, you now have access to all of the crypto that is now worth zillions of dollars, probably.
That’s a good Sci Fi novel in the making…what do most people use Crypto for? You hear a lot about the dark web…
Steve: One of the first dark net companies that started using crypto is Silk Road. The guy who created it is serving life in prison. He was 26 years old when he built it, and his whole purpose for creating it was that he wanted to create a free market. Like a totally free market that is not patrolled by any government or anyone…, and that’s exactly what he did. He created a dark net website that allowed you to connect to these websites that were untraceable. So the government couldn’t trace them, and you could go on it, and the government couldn’t find the source of where the computers are. So you can buy any drug, Heroin, Meth, Adderall.… and these websites still exist. Silk Road got shut down… the guy made a mistake and they found him, but since then, all these copycat systems have popped up and they are thriving and making millions of dollars selling anything. Because crypto is like cash, in that it’s untraceable and anonymous. What’s cool about these sites is that there is a full review system, so there are sites that send out a thousand different things a day, and they get thousands of reviews a day and so you only buy from people who have the best reviews ever.
And the government has no idea?
Steve: They can’t do anything about it. When you send your address to the seller, you encrypt it in a way that only the seller can see it. Even if the site was hacked, the government wouldn’t be able to see it. It’s encrypted. It’s not controlled by any one person. There are tens of thousands of sellers and hundreds of thousands of drugs… and they do such a good job of keeping it stealth…, and they use only USPS. USPS priority and first-class mail is protected by unlawful searches and seizures. FedEx and UPS for example…, they frequently just open up people’s packages.
That’s a lot of things not being regulated…
Steve: The thing is, regulation can be an issue if the main way people convert from fiat to crypto is through an exchange. The government could go in with their guns and shut down the exchange. Now all of a sudden people are having a hard time going from crypto to fiat… but there are other sites, like local Bitcoin agents, and you just send them cash and they’ll give you crypto. Trade cash for crypto. Eventually the price will be so high, the outlook will be so good…, once the value of crypto goes high enough, the price won’t fluctuate. It will be steady, and at that point, people will start to hold crypto and be like- “Fuck US dollars. Fuck Euros!” And some countries are very pro-crypto. Like Russia. And China is working on their own cryptocurrencies. Venezuela just did their own cryptocurrency.
How will the government cryptocurrencies compete with Ethereum and the likes?
Steve: They won’t. The Chinse version is not as decentralized. It’s through a system that is delegated through computers…, if your government decided to attack them or hold them at gun point, they could convince them to take money from someone.
The US gov doesn’t have anything yet, does it?
Steve: At the federal level, there is stuff. So the FCC and the IRS have put out guidance on cryptocurrencies. The newest thing is ICOs. That’s the current craze… which made the price go insane, recently. So, an ICO is like an IPO (Initial Public Offering). An ICO is an Initial Coin Offering. What people do is they use Ethereum typically and create a smart contract… in which the users who send one Ether to this contract will receive a thousand “tokens.” People have been raising so much money on these shit projects. I know people who came up with ideas that will never work, and raised millions of dollars in a day, and in turn these people get tokens that aren’t worth anything. Then those tokens go into a secondary market and start to gain in value…, and they are now worth more than the original Ethereum value is. It’s creating value out of thin air. It’s useful for certain things. I advise a few ICOs. For example, there’s the Academy ICO that trains developers in blockchain. Because there is a shortage, so we did an ICO. You send crypto and you are returned tokens. And those tokens are used for classroom hours to learn how to be a blockchain developer. All those funds that we raised in a span of a few weeks are being used to train educators to set up relationships with countries and schools and governments to teach them how to develop blockchain.
What do you say to people who say you are scam artists?
Steve: Well, a lot of ICOs are scams. They are run by people who don’t know what they are doing, and they just raise a bunch of money and they don’t know how they are going to create their vision. It’s like going on Kickstarter…the company just keeps the millions. And pretty much any ICO that comes onto the market right now always gets funded. So you can create an ICO for Blooming Wellness and we are going to give this out to people in the future, and all of a sudden you will raise a million dollars. But then you’d be stuck with having to create something worthwhile. But since most people probably only invested like 10 or 20 dollars – who cares?
So the ICO creators just walk away?
Steve: They could. And some have. There are some ICOs who promise ridiculous returns. The SEC is having meetings to try to decide which companies/tokens are considered securities and which are not. Any that are considered securities fall under SEC jurisdiction. That’s a huge problem. The price jumped up 10%, after it fell, and that’s because people were worried the SEC would classify Ethereum and Bitcoin as securities, which would have created massive problems. But it just came out and said that they are not securities, because they are decentralized, no one controls them and there is no promise of wealth.
So you call it high risk?
Steve: Oh yeah, it’s all high risk. For me, I don’t see a risk in the long-term because I know Ethereum is way more advanced than Bitcoin, but because Bitcoin was the first mover, it can still maintain its status and will hold value for a while. But I think Ethereum is really where blockchain is, where we are going. Because we can just do so much more. We can write any system you want…all these other companies that exist need Ethereum to run. The price will never drop to zero, because there is always a buyer at some level. And there’s a cost too. The hardware mining gets increasingly expensive as more people mine it. As the difficulty of mining gets harder. So that means there is already a value behind it. The value for mining it should be the same as the price at least. And it just gets more and more expensive.
How do you respond to people who call investing in crypto a huge waste? A huge loss? Nothing more than a con, where only a few people will get rich off of others’ money?
Steve: Obviously they aren’t educated and don’t understand how it works. A lot of big-money people look at it and are like, “Oh, it’s not physical, someone made it up, and it’s not protected by guns…,” and they are like, “Gold is real, gold has value.” But the majority of gold in the world is not being used for jewelry or being used for products. To move gold from here to China is very expensive. You have to verify it. You have to know that it’s real. It’s hard to divide. You have to chop it up into pieces. You can’t walk into a place and ask them to chop off 5 dollars worth of gold with a knife. With crypto you can. And it’s even more verifiable. If we were able to mine asteroids that are packed with gold – if you are able to get one of those asteroids, you’d be able to completely destroy the gold market, and gold here becomes worthless. But with crypto you can’t. Crypto is universal. You can send some to Mars and use it there.
How many cryptocurrencies are there now?
And anyone can invent one?
Steve: Anyone can invent one. Anyone can take the code, it’s all open source…, copy, modify it, and make your own.
What does it feel like to become super rich from all of this?
Steve: It’s funny. In January of 2014, I and one of the other founders of Ethereum, also a co-founder of Cardano (another Crypto in the top 10), was smoking a big-ass cigar outside and he said, “You know we are going to be millionaires soon. And you know, this is going to be worth millions and millions of dollars.” We knew crypto was going to be worth a lot, but Ethereum wasn’t really worth anything at the time. Now, that’s what’s happening. Everyone I know in that space is rich now. Everyone in this space is living like kings. A lot of them are full-out nerds, so you can’t even tell the difference. They dress the same…, they just eat a little bit better.
How has your lifestyle changed?
Steve: Since January 2014, I really haven’t been working. I’ve just been working on side projects in the crypto space. That’s been amazing. I have free time. I wake up and do whatever I want every day. Travel wherever I want. I never think about money. I don’t care about expenses.
You’re very confident.
Steve: I’m confident, yes. If the price goes down, I’m gonna feel it a lot more than you will. And it’s been a crazy roller coaster. It’s really crazy. To gain and lose millions of dollars in a matter of hours is pretty insane. A bad news story comes on and the price drops 20%. That’s a lot. But like overtime, I’ve had my heart swayed in every direction. I’ve had so many mini panic attacks. Now I don’t. I’m numbed out. I’m at a level now that even if it goes down, it’s not like I have to run out and get a job. I’m in it to the point that if the price drops 95%, I’ll have to get a job and my whole life will change. But I really don’t think that will happen.
You said it won’t go to zero…
Steve: Yes. But it could go to a point where I’m no longer set for life.
And then you’d have to get a job?
Steve: Then I have to get a job or find the next thing. And there’s a lot a cool things I’d be interested in: there’s a lot of new technologies that are going to change the world. Like virtual reality.
What are your top tips for folks new to crypto?
1. You’ve heard of Hodl?
Yes, of course.
2. Don’t ever sell lower than what you bought at. That’s just an idiot move.
3. Have a long-term outlook for it. Understand it. Look at all the companies investing their time and money into it.
4. If you are holding too much crypto, use a hardware wallet. Don’t hold your crypto on exchanges. Don’t leave it there, because exchanges get hacked all the time. I wouldn’t leave my money on Coinbase. If they wanted to right now, they could just shut you out or block you out of your account for no reason.
Feel free to leave questions & comments below. Or email me: firstname.lastname@example.org
Love that interview. And the way Steve explains blockchain. Brilliant. Definitely the future of the world.