While crypto pioneer Erik Voorhees was thinking about the concept for the company he founded, ShapeShift, the name just came to him one day. “I was thinking about an easier way to convert one crypto into another,” he said. “That should just be super easy, when you’re not dealing with fiat. There should be no delay, no need to create any kind of account.”
Instead, you hold a crypto asset, click a button, and it turns into another crypto asset. The experience should really be no more complex than that. It was unlike every other exchange the world in that it didn’t take custody of user funds.
“Basically, a user would hold their own Bitcoin in whatever wallet they were using, and, when they wanted to convert some of that into Litecoin, or into Ethereum, or whatever, they would send a transaction to us, and we would send a transaction of that other coin right back to them,” explained Voorhees.
That way they are not holding a balance with a third party over an extended period of time. Every few months, there’s some big exchange hack, says Voorhees, pointing out that hundreds of millions of dollars of cryptocurrency has been lost from these hacks. He says hacks will ultimately be solved over time.
“The bigger issue is that when you’re allowing someone else to hold your funds, they have control over them,” said Voorhees. “And, that means there will be political influence to stop payments or to prevent someone from controlling their own wealth.”
That’s always been something that’s personally important to him. “Bitcoin as a protocol allows that full self-custody and full self sovereignty.” So, when we built Shapeshift, we wanted to have that same principle. They’ve kept with that concept.
“That was the genesis of it,” he said. “In thinking of what that should be called, ShapeShift—the shifting of one thing into another of its shape—was clear and an obviously good name.” He liked the alliteration.
Voorhees first had the idea for ShapeShift in February 2014, with the first customer transaction taking place July 2014. “There have been so many ups and downs,” he said. “It has been an exercise in learning how to build a company, which is so little about ideas, and it’s so much about execution and connecting with people.”
This was a big lesson for Voorhees. “After you get past approximately twenty people, building a company is really about organizing and communicating with humans. This is something that’s not at all intrinsic to cryptocurrency. So, I’ve had to learn how to do that well, and I’ve made a million mistakes along the way.”
Voorhees says that, when he started ShapeShift, he was quite the amateur when it comes to business management. “And, at this point, I know so many things that I didn’t know, which is nice, but it’s been a painful, painful several years of learning.”
The worst and most difficult challenges were when ShapeShift moved to implement KYC. “ShapeShift never had this in the beginning, and I was and still remain vehemently opposed to it on ethical grounds,” said Voorhees. “But, we did it because the legal risk of not doing it was too great.”
This became apparent after millions of dollars of legal work. “That was extremely disheartening and depressing for me and the whole team,” said Voorhees. “Obviously, our customers hated it. We lost the vast majority of our business because of that decision.”
The decision, however, was meant to set ShapeShift up for the long term. “There was no way we could build a big company by having all that overhanging legal risk,” said Voorhees. “I didn’t want to let the business get destroyed and other people at the company and me thrown in a cage just because of these rules that were set up by politicians that don’t understand money, and really have no conception of what ethical behavior between humans is.”
That’s a really hard world to live in, and a hard thing to swallow, says Voorhees. “We still struggle with it, of course. So we’ve been adapting and we’ve been re-envisioning what ShapeShift is over the last couple years. It’s been a huge struggle, and very, very difficult.”
He says he’ll be able to tell a more full story about it someday, hopefully. “Even talking about it carries legal risk, which really sucks,” said Voorhees. “That’s tough, but, I didn’t start a business to have an easy, comfortable life. I’m trying to do something challenging for myself and build something that is valuable and useful to people and it’s not just a struggle every day, but, ultimately, is very rewarding because it’s meaningful.”
While Voorhees never fell into a depression personally, the whole situation was and is very depressing. He had built something that he saw as important and valuable, because it protects people, and ShapeShift protected people basically in two ways. “One, it was not custodial. And, we’ve maintained that since the beginning. But two, we did not require personal private information from them, because we didn’t need it.”
There was no reason to take someone’s personal information, in order to trade one asset into another, he believes. “It’s not needed logically,” he said. “And so, by taking such information, we are endangering them, we’re endangering ourselves, we’re putting a whole bunch of information into one place where it can be exploited by hackers. And so, to be forced by governments to endanger people is really a miserable feeling.”
ShapeShift had to begin taking personal information. “And in so doing I nearly destroyed my own business, and all the work that people at the company have done, and had all the customers irate at me the same time, purely because if you don’t do it, you’ll be thrown in a cage,” said Voorhees. “It’s just a horrible feeling. It does not feel like how adults should treat each other.”
That’s just been a really fundamental human struggle for me and others at the company, he said. “So what you do, ultimately, is you try to look at the bright side, and you try to look at what you still can do,” he said. “And what we still can do is help people use crypto in a self-custodial way where they are controlling their keys. And to make that so damn easy for them that they never feel that they have to trust a third party with their funds. That’s an extremely important mission. And so, ShapeShift has done that from the beginning and will continue with that model.” That remains ShapeShift’s focus.
“We’ve gone from a company that was just about converting one coin into another to now really a full crypto platform that maintains fidelity to a noncustodial pull,” he said.
Voorhees considers ShapeShift—indeed all crypto apps—as part of the DeFi space. The common understanding of DeFi, short for decentralized finance, encompasses the financial tools mostly built on Ethereum. Technologies that often resemble traditional financial tools that are composable and compatible with one another, like the ability to earn interest as in the case of Compound or the stablecoin DAI created by Maker.
“These are the basic building blocks of a financial system that is largely decentralized,” said Voorhees, noting some of it’s not perfectly decentralized. “But, there’s a broader definition, which I like better, and I hope becomes more commonplace, which is that DeFi will come to refer to the entire crypto ecosystem.”
Voorhees views Bitcoin as the first DeFi project, and sees generally everything in the crypto industry as DeFi. “Bitcoin was decentralized finance, the specific application being that of money,” he said. He doesn’t see DeFi as exclusive to one chain or another.
“It’s just the whole phenomenon itself,” he said. “And, importantly, a decentralized financial ecosystem will have protocols that are fully decentralized, and it’ll have companies that are fully centralized. And, there will be lots of gray areas between those two things. So, it’ll be an ecosystem composed of many different structures and many different models. But, the base layer itself is one that is decentralized, which the entire world can access.” He’s grown increasingly interested in that concept, seeing it as the evolution of cryptocurrency.
“We have this huge global financial system, which is built fundamentally on banks, and on fiat currency, and everything is built upon those foundations,” said Voorhees. “And the banks are all specially licensed branches, which have clear and strong connections to the governments. Obviously, fiat is created, owned, managed, and planned by the government, as well. So, you have a financial system based on two foundations that are both connected intrinsically with the governments of various countries.” And then, you have a different system––an alternative––which is blockchain based open finance.
“It is not based on banks, whatsoever,” said Voorhees. “In fact, banks are generally allergic to this stuff. Nor is it based on fiat currency at all. It’s based on cryptocurrencies. Bitcoin being the biggest and the first, and Ethereum is the second biggest at this point. And the many others of these cryptocurrencies are very different from fiat, particularly in the fact that they are open, they can go anywhere in the world instantly, and they cannot be debased by some central group.”
On top of those foundations, the whole cryptocurrency industry is building a new financial system. “And, some of that stuff, in the new financial system, will look similar to the old financial system,” said Voorhees. “There is still going to be interest rates, but they will likely be market based interest rates, rather than centrally planned interest rates. You’re still going to have things like loans and credit scores, but the way that you create a credit score will likely be built in very different ways. You will have payment systems—just like you do in the normal financial world—but they will be different.”
As all those pieces get built, it will become an increasingly plausible alternative to the financial system that people are used to. Voorhees says there’s still a lot of work to do. “But, it has come so far from where it was 10 years ago, and it’s accelerating.”
Voorhees views the cryptocurrency industry as a tree springing from the soil. “It started with a seed that was Satoshi’s white paper,” he said. “And Bitcoin was, of course, the seedling that grew out of the ground and turned into a small tree. And then, because this is open source software, people just start experimenting in all different directions, and these are the various branches and so the tree gets bigger and the branches extend out.” These branches are other cryptocurrencies, other use cases.
“They are the various companies that have been built around this stuff,” he said. “And, the tree just keeps growing and getting more complicated. As this tree branches out in all these directions, it becomes impossible to really understand it all.”
Voorhees is in this industry—in this spiraling tree that’s growing out in all directions—all day, every day. “And there’s so much that I don’t know, so many projects that I feel like I’m completely unaware of, and that I haven’t been able to spend time to dig into,” he said. “So many new people are involved in so many startups, and it’s amazing.”
He is just grateful to be alive and contributing at a time when something so important is happening. “I would be quite terrified of the state of affairs in the world, if cryptocurrency didn’t exist, and I didn’t have that escape hatch,” he said. “But, because Bitcoin is here, because crypto is here, I know that anyone who will listen can escape that stuff and have a viable alternative. It’s a volatile alternative, but it is viable, and more fundamentally sound, so that gives me great comfort and, hopefully, more people will start paying attention to it.”
The most rewarding aspect of the whole journey for Voorhees is seeing crypto rise. “I’m running a department of a startup, which is cryptocurrency,” he said. “That is really this massive global startup that all of us are contributing to. And, I have this little department called ShapeShift. I run that. There’s the reward of seeing cryptocurrency taking over the world, which is profoundly fulfilling and exciting.”
As his department continues to deal with innumerable challenges, ShapeShift will continue to figure them out and get through them. “That struggle, and overcoming challenges, solving every problem that comes in front of us, is extremely fulfilling,” he said. “Any life that is spent comfortably is a life that won’t be fulfilling and is a life that won’t be producing meaningful value for others. Every day I get to work with my team on overcoming challenges, and building an amazing crypto platform, which is an artistic expression. It’s an engineering expression. Ultimately, it is a political and ideological expression. And so that is the meaning of life, to be able to do that. And for all the challenges, it’s very, very fulfilling.”