Bankless - 55 - Welcome To Bankless | 2021 Edition

Starting point is 00:00:01 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, I'm really excited about this episode. First things first, happy birthday to bankless. Happy birthday to bankless. It has been a fantastic year of the bankless podcast. This is the one-year anniversary episode. And so what we are doing is we're going back all the way to the very beginning and redoing the Welcome to Bankless podcast episode. But we're doing it with a year of education, a year of better precision, and a year of just more overall information about what it means to go bankless and the tools at our disposal to do so.

Starting point is 00:01:06 I think this is going to be a great recreation of what I think was already a fantastic episode. but it's important to keep these things updated because the cryptocurrency industry moves so incredibly fast. And both you and I, Ryan, are one year smarter. And one year in crypto is a lifetime outside of crypto. So this episode is going to be really fun. Yeah, David, you know, in order to prepare for this, I went through and I listened to a bunch of our early episodes, like the first eight or so episodes. And, you know, like, we were just getting started on this. So there were some rough patches.

Starting point is 00:01:36 But I was also amazed at how well it held up. I was amazed and impressed. So guys, our purpose with this episode is to condense those first eight episodes or so into one. So this is a what is bankless episode that you can send your friends, basically. We're going to try to distill and summarize the bankless program, the introduction. Like this is the single episode. You can send your friends on the 101 of crypto, the 101 of Defi, and the 101 of the bankless program. But David, I'm a little scared because this is somewhat like,

Starting point is 00:02:09 eating an elephant, dude. Like, there's so much to cover. So the art here is going to be, can we condense it well enough and give everyone kind of a drive-by preview of what this whole crypto thing is all about? You think we're up for it? Absolutely. And I think that's something that we have specifically gotten better at over the last year. And so for the bankless veterans out there, the people that have gone through the program and are not noobs, I think this will still be valuable to you because Ryan and I endlessly try and sharpen our speech and sharpen our models and sharpen our way to explain things. And I think that's why, that's definitely why we want to redo the first episode is because we've gotten better at explaining things. And I think for the

Starting point is 00:02:53 veterans out there who are also on the journey of learning how to explain this industry, this might be a good episode to just sharpen your own sticks as to the correct mental models that land really well with crypto newbies. All right. Excellent. Well, let's get into it there. The other benefit, of course, is now we are doing things on video, so you can check this out on YouTube as well as on the podcast. And before we begin with the episode, we want to thank the fantastic sponsors who made this episode possible.

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Starting point is 00:05:14 So get ready for the bull market. Open a free account in less than three minutes at gemini.com slash go bankless and get $15 after you trade $100 or more within the first 30 days. That's jemini.com slash go bankless. All right, David, let's get right into it. Why are we going bankless in the first place? What is this whole crypto thing? Why are we on this bankless journey? The cryptocurrency industry, starting with Bitcoin and expanding into Ethereum, is inherently based on cryptography. And cryptography is inherently putting power back into the hands of the individual. The entire cryptocurrency revolution is based on this fact.

Starting point is 00:05:59 Cryptography puts power into the hands of the individual user. This is the creation of public, private key cryptography, where if you are the owner of a private key, you have complete control over your domain. And in the world of crypto, your domain is your money. And on Ethereum, it's also your finances, right? And so we are going bankless because of a number of different reasons. It's inevitable, we think, and we're going to get into why it's inevitable in the future. But first and foremost, we're going bankless because money and personal finances and personal wealth should be something that you are in 100% control over at all times. This is about personal sovereignty. This is about personal agency and not having anybody controlling your personal financial lives. When you go to work

Starting point is 00:06:48 every single day and you toil for eight hours a day, 10 hours a day, whatever, if you don't have maximum control over the storing of your wealth and the management over your money, you are giving up some of your time, your life's energies, to, you're not. You are giving up some of your time, your life's energies to somebody else. And so with crypto tools, that eight hours a day that you work to generate savings gets retained because you have these personal sovereign financial tools like Bitcoin, like Ethereum. Cryptography and economics are the magic that make this possible.

Starting point is 00:07:21 But the end result is this is about building a self-sovereign money system, where we can all have less dependence on the banks that control our lives. and we can control our own lives. This is a, this is really a journey towards, towards freedom. David, let's talk about the banks that control our lives. I think people are vaguely aware of this. You know, do you remember back in 2008, the Occupy Wall Street sort of movement? This is, this has generated some anti-bank kind of pushback. But like, what are the two groups of banks that control our lives? Let's first talk about the first group, which is the central banks. What are the central banks, David?

Starting point is 00:08:03 Yeah, the central banks are extensions out of nation states, right? So the country you live in likely has a central bank, and that central bank manages the currency. It manages the money. And the ability to manage money is really, really powerful, and it's something that the nation state wants to keep for itself. And so it employs a central bank to manage the currency of the world. The most powerful central bank in the world is the Federal Reserve,

Starting point is 00:08:29 the bank that controls the dollar. And so the central bank, the Federal Reserve, determines the value of a dollar. And the central bank has certain mandates. It wants full employment and it wants price stability in the dollar. And it leverages different levers, dials, it tweaks some metrics to make sure that it can achieve its mandates of full employment and a stable dollar. There are some issues with this because human management over money is an inherent. subjective exercise and that subjectivity can be pushed and pulled by interests. People have certain interests in the management of the money being in one particular way and that can

Starting point is 00:09:13 be corrupted over time. In the bankless world, on the bankless nation, we believe that money is a public good that no one can have control over. And so the central banks are one of the top, the man behind the curtains that's controlling our lives by determining what the value of our money is. And I think that a bankless world where money is an opt-in system where money is defined by protocols is a much more sustainable, depoliticized future. I believe money should be depoliticized. And the central banks are inherently a political institution to have political management over currency. And I personally think that's bad.

Starting point is 00:09:53 That is one way that central banks exert control. They're really masters of the financial world. And they are at the base layer, which is kind of the M-0, the base money layer. So if you notice why financial analysts on TV, they'll constantly talk about what the Fed chair said. It's because what the Fed chair says is so important for everything, like bonds, stocks, asset values, home values, everything that affects your financial universe is. is ultimately dictated by a very small group of people who are supposed to be apolitical, but they are definitely politically influenced at the Fed. So the central banks are one group, certainly at the base layer of all of this, that controls our lives. Sometimes it's not all bad either. So there are some benefits, and we could get into a conversation around Austrian economics versus Keynesian economics. If you're interested in that, check out our second episode that we ever published in

Starting point is 00:10:52 bankless. We'll include a link in the show notes. But David, let's talk about this term, because before we leave the conversation of central banks, I think we have to talk about the cantalon effects. And people call this the cantalian effect. What is the cantalon effect? Why is it bad? Yeah, so with central banks, central banks have immense power. And with immense power comes immense responsibility. They have responsibility over the management of the money. Everything with value is downstream of this. And the cantalon effect is this unfortunate side effect that results from the existence of the right to issue currency.

Starting point is 00:11:31 And what a central bank is, is an institution that has the right to issue a currency. They're all, all, the only legal dollars out there came out of the central bank. Everything else is counterfeit, right? Only the central bank has the authority and the legitimacy to issue currency. And as a result of this, uh, to issue currency, when the central bank does issue currency, it has to get injected into the economy somewhere. There's one thing to print money, but you actually have to put it in the economy. And when you put money into the economy somewhere, the places that you put that

Starting point is 00:12:07 money into are inflated in value because that's what money is, right? And so the cantalon effect describes this unfortunate consequence of money printing where the places of monetary injection into the economy become inflated and overvalued because that money hasn't yet diffused out to the rest of the economy. Money takes time to diffuse. It takes time to get from point A to point B. And so when the Federal Reserve injects money into one specific spot, that one specific spot benefits. It has very strong tailwinds because it gets access to new money before the rest of the whole entire global economy can integrate that new level of. money, right? And so if there's twice as many dollars out there because we just printed a bunch,

Starting point is 00:12:54 but all of that new printing goes into one specific spot, whether it's the bond market, equities market, housing markets, those markets will have increased value versus all other parts of the economy. And this is called the cantillian effect. People and institutions and companies that are proximate to the money printer, they're proximate to the Federal Reserve, they benefit, They have tailwinds on the valuation of their assets and everything about what they do because they are close to where the money gets printed. One effect, I think, that we've seen from this is massive wealth inequality. So basically, the U.S. and the Fiat system has been on an experiment since the 1970s when we got

Starting point is 00:13:41 off of the gold standard. and we've slowly kind of ratcheted up the amount of money printing that we're doing at the central bank layer. And the net effect of this, some people think that when the Fed prints money, that instantly causes inflation in the prices of things like household goods or things like food items, things you might buy at a store, the consumer price index, that's one measure of inflation CPI. but where this money printing has actually gone over the last 30 years or so, and in an accelerated way over the last 10 years, and in fact we've just seen it over the past years, is it's gone to asset prices. You'll notice that wages have largely stayed stagnant since the 1970s, but asset prices have accelerated massively. And even in 2020, where most people had a very difficult year from a wages perspective, from a salary perspective, small businesses shutting down due to coronavirus. We saw record stock market prices, you know, the stock market up 44%.

Starting point is 00:14:50 And so people ask, where's the inflation? The inflation has gone to the asset prices. And the tragedy of it is, wealthy people are the primary owners of assets. So many in our world today, whether you live in the U.S., you live in Europe, wherever you live in the world, many live paycheck to paycheck. They don't have much money to store away in the form of wealth. But the wealthy, 25% or so of the country that can afford to buy stocks, for instance, they store their value and their money in other places. They store it in stocks. They store it in bonds. They store it in property. And those assets have just massively increased in value while things

Starting point is 00:15:33 like wages haven't. That's an outcome of the cantalon effect. It is exacerbated. wealth inequality due to the way we manage base money. So that is one net effect of the central banks. And it affects everything in your life. Like it affects, you know, the political landscape and this rise in populism that you've seen. And the reason why everyone's angry at each other is because they're focused on this, you know, relatively fixed pie and divvying that up. And there's massive wealth inequality. So this is what we mean by central bank monetary policy, controlling our lives. These are the ways they control it. And by the way, these are not necessarily evil people. They are caught in the system just like the rest of us and they are making the best

Starting point is 00:16:18 decisions that they can make. But not having a credibly neutral monetary system, having that the dials on money printing in the hands of the few has led to this sort of outcome. Parsing apart inflation, I think is really, really important because when people talk about inflation, the typical canonical way that people talk about inflation is from consumer price index. And those are your consumables, your foods, the cost of filling up your car prices, housing prices. And then there's other kinds of inflation. There's also asset price inflation, which is what you just talked about. And then there's also monetary base inflation. So there's three different types of inflation here. And when we inflate the monetary base, we tend to inflate

Starting point is 00:17:04 assets and because of that monetary base inflation, which is quote-unquote the money printer go Burmene, when we print money, the monetary base increases, and that tends to be reflected in asset prices and not in the consumer price index. And what that means is, and because there's a large amount of just general financial illiteracy, a lot of people don't understand that, you know, just because inflation in consumer prices hasn't gone up doesn't mean that they're, that they have kept up with inflation. Inflation is this very broad subject. And it's really important to point out that, like, fantastic, we haven't had consumer price inflation over the last 30 years. That has generally been under control. But what has not been under control is asset price inflation. That has gone out of

Starting point is 00:17:51 control. And so while salaries have generally stayed the same over the last 30, 30, 40 years, maybe even some have kept up with inflation. Many, many haven't. What they definitely have not, kept up with is how much a cost to purchase a share of the American economy or the global economy. So while the bottom 99%, they are still able to afford food and they can afford Netflix and they can afford rent even just barely, what they cannot afford is a share price of Amazon stock, which went from $1,000 to $3,000 in the last year, right? They can no longer afford wealth. they can just afford consumables.

Starting point is 00:18:34 And so there's this massive discrepancy between people that can just scrape by and afford consumer price index goods the things that they need to do to survive, but they can no longer afford the things that they need to survive and thrive and retire on. And that is what is now causing, I think, so much political turmoil,

Starting point is 00:18:54 both on the left and the right, is because no one can afford the things that generate wealth passively, because asset price inflation has gone through the roof as a consequence of money printing. And this is why central banks are inherently a political institution. It's not possible to strip this effect of money printing away because the canton effect cannot be eliminated. There will always be an injection point of currency into the system and that will always

Starting point is 00:19:21 create wealth inequality downstream. It will also always create corruption as well because there is extreme incentive if you are wealthy, if you hold. particular assets, there is incentive to push the monetary policy in the direction of asset inflation. So when you have a very small number of people able to govern the dials on these things, what you see is less helicopter money for the people and more helicopter money for the businesses and the banks. So all of this, the net effect on the central bank side of things, David, is that we have unequal access to the money printing.

Starting point is 00:20:01 I want to bring the second class of banks in here, too, David. So we said central, we talked about central banks. Commercial banks is the second class of banks. So these are your Wells Fargoes in the U.S. HSBC, if you're in Europe, you know, Bank of America. These are the banks that we think of when we say something like, oh, I just opened an account, a bank account, right? These are the banks we use from a day to day.

Starting point is 00:20:25 we might have a checking account there, we might have a savings account there. And these effectively are private public institutions. So they almost operate as nodes on the central banking network. So they're very tied into nation state and the central banking system, but they also operate privately as well. We're talking about unequal access to the money printer. There's also unequal access to the banking system. Maybe the first place to talk about this is if you are in a developed country, you have access to some decent banking services. So I can go and I can open bank account in the U.S. I live in the U.S. and it's one of the world's leading financial systems. If I live in a country that does not have a developed banking system, I am shut out. I do not

Starting point is 00:21:19 have access to the same banking system that you do. So we have these geographic boundaries, David, on the quality of banking system that we have access to. Can you talk about that a little bit more? The idea that currently today geography dictates banking quality. Because currencies are inherently an extension of nation states, the dollar is something that is domiciled inside of the U.S. and the U.S. banking layer is confined by borders and politics, which is something that I think personally is not fitting for what money should be. Money should be a global public good that everyone has access to, yet the banking network is just a patchwork series of connections between bank to bank to bank, which ultimately ends back at the Federal Reserve. And this is true for all

Starting point is 00:22:11 countries, right? With all countries with their own internal commercial banking layer, it all connects back to the country's native central bank. But it's all very patchwork. And it's and really, when you make a, when I send an ACH wire to you, Ryan, it's going to go through a couple of hops of banks. And those banks need to be connected. And that works for us because we both live in the United States. But if I wanted to send a wire to somebody that lives in Europe, it's even more hops between a bunch of just different intermediaries, and it takes time, and sometimes it doesn't even work, and we can go and make even crazier connections. Like maybe we wanted to get some money from some Southern American country, and we wanted to send it over to

Starting point is 00:22:53 some African country. There might not actually be a pathway to get that done. We might not actually be able to use this banking layer to connect person A to person B when they live all across the world, because there isn't one single global payments layer. There isn't one single global banking layer. And so the commercial banks are this desperate interconnected mesh that sometimes doesn't actually connect. And it's kind of inefficient because there's no one single substrate that it operates on.

Starting point is 00:23:20 Yeah, absolutely. So the traditional banking system is very closed. It's not transparent today. It's analog and it's inefficient, as you said. I think anyone in the financial sector today would tell you that there are definitely areas that are broken about the existing financial system. So for instance, like if you want to wire money to me, David, you might have to go to an actual banking branch in person and show your ID in order to transmit money like from yourself to me.

Starting point is 00:23:57 And that's because you have to go through this banking intermediary and this very inefficient analog system. So one other reason we go bankless is because bankless presents a better money system for the world, more efficient. We can send money in a peer to peer fashion. We don't have to go through the old banking network of intermediaries with all of the costs associated with it. We'll talk about that more soon, David, but I want to touch on this other idea. We talked about nation states controlling the commercial banking system, the central banking system. And that seems to me, that could definitely lead to bad things in a world where more authoritarian leaders get elected or assume power of various countries and the world turns more authoritarian.

Starting point is 00:24:51 Governments should not have the ability to lock people out of the banking system and out of the economy and with the current traditional banking system that we have set up, they absolutely have the ability to do that. Can you talk about that? Yeah, it's one of the key ways that governments maintain power and authority. And, you know, governments having power is a good thing. We want our governments to be able to, you know, execute on strategies. Coordination is good. However, it's up for debate whether or not they should have control over money. Again, like on the bank list, journey, the bankless narrative is that money is a public good. In the same way that gold is a public good, you know, if you have a lump of gold in your hands, you can pass it between two people.

Starting point is 00:25:38 And it's just this thing that exists on the world that we can all use collectively. Gold has some problems. And we think crypto can fix these problems. But importantly, gold is a public good. The U.S. dollar and specifically non-cash U.S. dollars or other Fiat currencies that largely live on centralized database ledgers, like the ledger of Wells Fargo, the ledger of Bank of America, the ledger of the Federal Reserve, we need to ask permission to use these things. And so when you give up your money, your cash, and you give it up to Wells Fargo and you let Wells Fargo manage your monies, you are allowing them to control how you use your money up to the rules and laws of the nation state. And while this can be for good, this can also definitely be for bad. We've seen very authoritarian leveraging of this power out of Argentina, where Argentina and definitely in Venezuela as well, where people, would come and submit dollars to their bank accounts and the Argentine government would forcibly sell their dollars for Venezuelan boulevars to ensure the value of the Venezuelan Boulevard. In India we saw the Indian government just abruptly discredit the value of certain fiat currencies and so if you own certain types of bills they were no

Starting point is 00:27:00 longer legitimate and you would have to swap them out there's just a bunch of power issues when a centralized group of people have the ability to control how we use our money. And again, our money is something that we work for. And so when we go to work for, you know, 40 hours a week or however long or however long and hard you work, ultimately that work, the money that you use to store your labor in is dictated by people that control this money. And that's both the central banks and the commercial banks. And I think there's a better world out there than just having the rules of commercial banks just be an extension of central banks, which are an extension of governments. Money is a public good, and that's not currently the form that

Starting point is 00:27:45 money is in when we use nation-state ledgers. Look, we figured out that the separation of religion in state was a good idea some hundreds of years ago, and now I think we're figuring out that the separation of money in state is also a good idea for some of the reasons you mentioned. So why are we going bankless. This is a story of self-sovereignty. This is a story of freedom. We talked about unequal access to a banking system. That shouldn't be the case. We should all have equal access to the banking system. Maybe just with an internet connection, if 4.5 billion people have the internet, let's allow them all access to this new banking system that we built. The current system is corrupt. It breeds inequality. So there's money printing for the already wealthy. We need a more credibly

Starting point is 00:28:33 neutral system without a small group of people being able to move the dials up and down. We should have a system that is immune from authoritarian control so that individuals, the people, cannot be shut out of economies if they're political dissidents or if they don't agree with a certain set of politics. And finally, David, we need an open system, something that's not closed and inefficient. The financial sector today consumes a massive amount of GDP. And it's through, middlemen, it's through intermediaries that are rent-seeking and taking a cut of this. Why do we need that? Maybe we don't. So let's get to the second item on our list. How does crypto solve this? Maybe we should talk about this first, David. This idea of rather than putting people in charge

Starting point is 00:29:21 of this whole thing, let's put code in charge. Let's put what we call protocols in charge of this. David, what is a protocol? And when we say, you know, we want protocols. protocols, not kings, when we say we want protocols, not bankers. What do we mean? What is a protocol? Communication protocols over the internet are endless, right? Like SMS text messaging, email is a protocol. TCPIP are protocols. There are many protocols that compose the internet that we use.

Starting point is 00:29:53 And when we say crypto protocols, we are just adding another protocol into the internet stack. And so we can consider Bitcoin to be a protocol. And we can also consider Ethereum to be a protocol. And what's unique about these protocols is rather than just communicating data, these protocols can communicate value. And that is what basically Bitcoin unlocked, Satoshi unlocked in 2009. And what Ethereum in 2015 has really expanded upon is we are able to take rules about money, if then statements about money, just logic about money,

Starting point is 00:30:28 and turn that into a protocol that exists on the Internet. and when it exists on the internet, it's so much more powerful than your typical patchwork connection of banks between the commercial banks and the central banks. When it exists on the internet, everyone can access these protocols. And what's also uniquely compelling about crypto internet-based protocols is that they are inherently an opt-in system where the nation-state central banks and commercial banks, you cannot opt out of those things if you want to live in those nation states. Like you can't really just function as an individual without using these things and you have to use them.

Starting point is 00:31:07 But with Bitcoin and Ethereum, you choose to use them. And they have to compete for you to use them, just like all the other protocols out there. They have to be competitive. And so they are fighting for your attention and they are just, and they are competing in ways that legacy commercial banks and central banks don't have to compete. So these protocols are competitive. and the net result of that is competition is good for the people that use these protocols. Absolutely. So opt-in. You mentioned competition. When I think of a protocol, it's really simple. It's just a set of rules. And the protocols we're talking about in this new crypto money system, these are rules defined by code and math.

Starting point is 00:31:47 So inherently, there's no bias and no human judgment. We use this term a lot in bankless, this term called credibly neutral. We talked about corruption when we were talking about central banks, credibly nukes. Credibly neutral means very difficult to corrupt, unbiasedable. It's credibly neutral. People believe that it is a thing that can't be biased in favor of one party or another, whether it's the wealthy in favor of the poor or whether it's someone from the U.S. in favor of China. Credible neutrality is important for protocols. I think one great example that we see every day is like because, you know, humanity as a society, civilizations really scale on social coordination technology, right? Like money is just a social coordination technology.

Starting point is 00:32:31 Governments are just a socially social coordination technology. One great example of a credibly neutral protocol, I think, David, is the U.S. Constitution. That was a set of rules embedded in a 4,000 or so word document called the Constitution, and it was just a set of rules. And it outlines some balance of power sort of thing. So there was credible neutrality baked in. And what did it allow it to do? It allowed a young nation state to replace a king with a constitution, with a set of protocols, right? So we could do that for the monetary system as well, David.

Starting point is 00:33:08 And in fact, that's essentially what Bitcoin does as a monetary system. Rather than having the Fed coordinate the dials around how much money should be printed based on these various things. The Bitcoin monetary system says, here's the issuance, right? There shall be only 20, million every four years. We're going to cut supply in half. And that's issuance. And it's credibly neutral. Everyone knows what they're getting into when they buy Bitcoin, when they become part of the Bitcoin network, right? They opt into it, as you said. So it's a credibly neutral monetary system. So what we can start to do is we can take some of these banks and financial rules, whether it's a central bank monetary system and issuance policy, or whether it's

Starting point is 00:33:55 commercial banks deciding whether to loan or to borrow and what the rate should be, and we can turn them into credibly neutral protocols that are digital, that are code and math driven. And that's what this crypto story is all about. I really enjoy the comparison of like the United States Constitution as like a very early attempt to create a protocol out of a country, right? A country, like you said, a government is a way to generate scaffolding for people. to coordinate around and we coordinate around laws. We these laws that we all agree to follow and then if we do not agree to follow them, bad things happen. There's punishment, right?

Starting point is 00:34:36 And the Constitution is this very early set. It's like the very bottom substrate of the code that creates the US government. And every single governmental institution is built on top of that very early protocol, right? And so all of that, just the cost of government and the, which many people would call very, very large, all three branches, the executive branch, the judicial branch, the legislative branch. These are all branches that try and establish and extend, like, verifiable if-then statements that turn into laws that everyone inside of a country can follow. And because we all know what the laws are, we are better able to coordinate better. At the end of the day, there's no removal of subjectivity from this system, right?

Starting point is 00:35:23 That's what the judicial branch is. It's a system of courts where people go to court and say, well, I interpret the law like this, or I interpret the law like this. But it's still all an attempt to make credibly neutral, if-then statements about how we govern our lives. And the reason why Ethereum and Bitcoin are so revolutionary is that it strips out all subjectivity from the code,

Starting point is 00:35:43 from the protocol. It is straight math and math alone. There is no subjectivity in these things. And that inherently makes them more socially scalable. We don't have to go to court and fight about what these things mean because it's just built natively into the protocol. And that lack of subjectivity is something that humans can really, really, really latch on to. This kind of technology, I think it's important. We're familiar with the term international, but this is extra national, right?

Starting point is 00:36:10 So this exists outside of the domain of nation states in some respect. And here's the reason that's important is because when nation states can't agree and come into conflict, they need a way to settle their conflict, right? So let's say China doesn't want to adopt the U.S.'s Swift network, which is basically, you know, the way the world transmits dollars and other forms of value in the traditional banking system. Well, they can settle a value transaction on crypto network, something like Ethereum, something like Bitcoin. Let's say, you know, that certain countries around the world no longer want to adopt the U.S. monetary system. Well, there's a crypto monetary system that can't be influenced by nation states and political

Starting point is 00:36:59 parties that they can adopt and said. So crypto is extranational. It's above the nation states or maybe it sits sort of at the bottom of nation states government. And what we're really doing here, David, with this talk of protocols is it's, it's, turns out the entire money system, like everything we know about banking and money, is really a set of general ledgers, almost like Excel spreadsheets, and if-then statements. So it's all code underneath it as well. So the question then becomes for crypto is what if we can replicate this existing financial system in a way that's more credibly neutral? That can't be

Starting point is 00:37:41 biased, can't be corrupted, can't be influenced from the base layer financial system, all the way up. And what if at birth this thing was open, accessible to everyone with an internet connection, permissionless, like the internet, so anyone could build on it, anyone can access it. It was completely open. So you could click view source on everything. You could fork it. You could create copies of it. You could modify it. There were no silos. It was completely verifiable. What would that be like? What would the internet of money be like? What would the internet of finance be like. And it turns out the answer to that is what we're building in crypto. And it's it's like 100x more powerful. We think of the bankless journey is almost giving you money and banking, but with

Starting point is 00:38:30 superpowers. Like my Ethereum account, where I do some of my my crypto banking right now, it's got to be 100x more powerful than my Wells Fargo account in terms of the things that I can do with it. And it's getting more and more powerful every day as well. Do you want to say anything else about that, David? I think the core innovation really that we're getting to is that Bitcoin and Ethereum, these cryptographic protocols, reduce the costs of human coordination. They make human coordination easier. They facilitate human coordination. And they start with the money and they start with the base asset, BTC and ETH, but it expands out from there. So the money, money is always first, but the conversation goes so much further than just money.

Starting point is 00:39:16 But the point is, is that humans, throughout our entire history of humanity, have been trying to develop technologies that allow us to coordinate better. And this goes back basically as far back as time, like recorded history. Like the establishment of religion is actually a human coordination system. And religion is kind of like an early government, if you will. It's the Bible or the Quran or the Torah. is a book of code of how to live your life in order to create a way of how to live a life that works with other people. And these institutions were successful. And then we invented the Democratic

Starting point is 00:39:55 nation state. And that was even better. And now we have Bitcoin and Ethereum, which we think are going to increasingly reduce the cost of human coordination and allows humanity to be humanity even better. And use that term even better. And I think that's true. But it's also the case that these crypto systems will work alongside those other institutions as well, human institutions, like religion and like the nation state. There are things that the nation state can do that crypto will never be able to do, build roads, build hospitals, that sort of thing. But the things that crypto can do more efficiently, more effectively than the nation state will move toward the crypto-based system. And it turns out, David, that one of the things crypto can do much more

Starting point is 00:40:40 efficiently than the nation state, it seems, is finance, is money, is the entire banking system. So that's really the start of the bankless journey, realizing that what we're building here is a parallel financial system. So there's the existing legacy financial system. We use terms for that like traditional finance and you know, tradfi or like old fi or like there's lots of terms for the existing banking system. Legacy finance is what it is. And the, um, the, there's this new system that we're building from the base layer up. And the base layer, of course, is money. We're building all the way from the base layer up. And that's kind of the bankless financial system, the crypto financial system, the defy financial system, which of course stands

Starting point is 00:41:26 for decentralized finance. So David, I think what we should do is start describing this parallel financial system because it's not complete yet. Like we haven't built the whole thing out yet. But we have some of the foundational scaffolding for it and it's real and you can start using it today, let's start to describe what that actually is. And David, I think we should probably start at the base layer. So when we think of the traditional financial system, the legacy financial system, the base layer of everything is money. It's this thing called M0, which is kind of the base layer money. And right now in the traditional financial system, the reserve currency of the world is That is the M-Zero of the world.

Starting point is 00:42:14 Let's talk about the base layer money in traditional finance versus crypto finance. But I think in order to do that, David, we might have to take a step back and actually describe what money is. So like, David, what is money? Money is what I like to call tokenized time and energy, right? When you, like I was saying earlier in this podcast, you go to work for eight hours of your life, which you will never, ever get back, and then you labor for somebody else. And that somebody else owes you a favor, right? And so they owe you something because you worked for them. And money is really this tool that can take that labor that you provided, that labor and your time, and puts it

Starting point is 00:42:59 into a symbol, a token. And money is really the transference of somebody else's labor and energy from one person to another person. And when you, so when I say, like, hey, Ryan, you owe me a dollar. What I'm really saying is I, you owe me a dollar worth of your time and energy. And so you can go and do whatever you want to generate your dollars, do whatever you want to generate your income. And then you can pay me a dollar because you owed that to me. And it's really just a way to, it's a substrate for storing people's energy. And then it's also the way that we communicate value. And so if, if my specialty is that I grow apples and I want somebody to make me a pair of shoes, I will spend my time and energy to grow apples,

Starting point is 00:43:44 and I will sell them to somebody that wants apples, and they will pay me money. And then I will take that money to the person that can sell me shoes, and they will sell me shoes. And so money is just really this communication layer of value. It communicates value between asset A and asset B. It's really this substrate thing that we all use collectively. And money is often defined as the most saleable good. And this is why I was talking about gold earlier. Gold is very saleable. Gold you can trade for almost any item anywhere in the world because people equally value gold everywhere in the world. Money is something that you can always depend on. They're being a buyer for. And so no matter what you produce or what you want to purchase, money is the thing that people will

Starting point is 00:44:30 always accept for their goods because people always can understand that, you know, the dollar or the euro or gold or whatever is good for the money, is good equally across all worlds, across all time, across all scales. And so money is really this value communication tool. It's really a communication tool, not of language, not of words, but of value. It's really kind of like a point system, right? But the way you've, the way you described it, David, it almost makes it sound like money can be this, this arbitrary thing. But it is the case that societies across history and even today settle on some consensus of what money is. So, David, if you were to give me like Hoffman bucks, right, I'd be like, David, that's not money.

Starting point is 00:45:17 I'm sorry. Like, you owe me real money. You can't just pay me in Hoffman bucks, okay? That doesn't work. Or like monopoly dollars or whatever you want to use. So you individually can't just decide something is money, right? There has to be this social consensus, this collective consensus. this collective consensus on what the money is, right?

Starting point is 00:45:37 In some ways we've described David Money as like this shared meme, and that is true, although institutions can also push social consensus in one direction or another. So we were talking at the beginning of this about central banks and the nation state. One of the ways they push money in a certain direction is they say, the U.S. dollar shall be the mechanism and the denomination by which we will charge taxes in our country. And you are forced to pay taxes or else you are breaking the law and there will be repercussions. So, you know, you have to own some dollars in order to pay your taxes if you are a U.S. citizen. They also do things like they make the U.S. dollar the only legal tender.

Starting point is 00:46:25 So essentially all merchants, if you're doing business in the U.S., you have to accept the U.S. dollars so they can push money in one direction or another? But can you talk about this? Is that all money really is? Is it just a social coordination? And why do we choose the money that we have? Yeah, it really is just a social coordination game. And Ryan, you said that monopoly dollars aren't money. Monopoly dollars are money inside the context of monopoly, right?

Starting point is 00:46:54 When you are playing monopoly, they are money. They work as money. You can buy and sell these things as money inside the context of monopoly. We can just scale that metaphor out to the United States as a country where the dollars work inside of the context of the United States. And that's actually one of the unique things about the dollar is that the dollar has such a strong brand that people likely will still honor the value of the dollar everywhere else in the globe.

Starting point is 00:47:21 And that's something that's unique about the dollar. That's not true about basically. all other currencies. The Argentine peso, the euro, the yuan, these things generally don't have the saleability that the dollar has outside of the context of where these currencies are accepted. And when we talk about how money is just this social coordination meme, it's money is whatever people call money it to be, right? We can, if humans collectively decided that, you know, monopoly money is actually the money, then maybe that would actually be the money. And so it's really a social coordination game, except this social coordination game has like guardrails or borders or

Starting point is 00:47:59 restrictions around who can play the game. And it's these guardrails and restrictions are literally the physical geographic borders of the countries that manage the money, right? And so with the US dollar, the game stops at, you know, the border between Canada or Mexico, right? Or with the Argentine peso, the game, the coordination game stops at the borders. But people don't stop at the borders. People are global. People are everywhere across the world. And that's what makes the internet such a unique platform to play this social coordination game of money. And why this revolution behind Bitcoin and Ether is extremely compelling is that it offers a borderless substrate to play this social coordination game of what is money. And now I think in the 2020s,

Starting point is 00:48:45 people are re-asking themselves as a question, what is money? And they are looking towards the internet to offer them a platform to play this social coordination game of perhaps finding a new money that doesn't have some of the restrictions of the borders of countries. Interesting. So the question becomes, what is money in the internet era, right? In this new digital era that we have all entered into over the last 30 years and are accelerating into even more. And I think that point that money is as kind of, it depends on your local economy is very good. So in the game of monopoly, monopoly money is money. If you're in jail, you know, prisoners have been known to use like cigarettes as a form of money. Money is certainly relative to your

Starting point is 00:49:29 economy, the economy that surrounds you. And so the question is, what is the internet economy going to be? And maybe crypto provides an answer to that. But I want to get into one thing that you said, right? Because money does have to have certain attributes. One of those attributes is it can't be easy to produce money, right? So the reason I don't have a money printer that prints $20 bills in my house, David, is because if I did have that, I know that the nation state would come down on me hard and that I would end up in jail, right? So basically, the United States secures the authenticity of its fiat dollars, of its money system. That's why I don't do it. You know, the reason monopoly money isn't money is because it's very easy to print.

Starting point is 00:50:21 The reason throughout time, harder assets like gold and silvers became money is because it's essentially impossible to produce those assets. Those assets are scarce. Can you talk about that attribute of money? Because not everything is fit for a money. Like we could use cattle as money, but cattle die. Talk about that for a minute. Yeah.

Starting point is 00:50:44 So going back to the money is a social game. game metaphor, the game must be, must land. People must coordinate around good money. And like you say, good money has certain attributes. And there's reason why gold has been actually the dominant store of value money for thousands and thousands of years when the average typical fiat currency has the average lifespan of, I think, 27 years. Gold, like you said, is very scarce. And, you know, you can actually use alchemy to produce gold. We can actually fabricate gold, but it actually costs more to do that than the value of gold that you would fabricate, which is what we call hard money. It's actually the only way that you can actually produce gold is by going and finding it in the crust

Starting point is 00:51:26 of the earth, which, you know, that gold was produced by like exploding stars millions of years ago. Like, we're not replicating that. No one can actually produce gold. There is no such thing as the gold printer. The gold printer doesn't exist. And that makes it a really attractive magnet for this social coordination game. The other competitive advantage that gold has was that gold is actually a fact. equally all across the world. There is not one continent or one country where just significant

Starting point is 00:51:53 amounts of gold deposits are found. It's actually dispersed pretty equally. And so that makes it fair. And humans like fairness. We are attracted to fairness. This is the term credible neutrality. Gold was adopted due to its credible neutrality. And I want to distill two parts about money that I think is really valuable. One part is the subjective part, right? The shared meme, the shared narrative, money, the value of a dollar is not the ink and the paper. It's the fact that when I give you a dollar, you'll give me one dollar's worth of value in return. That's something that stays in the brains of people and is only in the brains of people. It's a shared myth. It's a shared narrative. The other side of money is actually technology. And I'll go even very, and I'll be very reductive and say like gold is actually

Starting point is 00:52:36 a piece of technology. It's the substrate. It's the vehicle. It's the physical atoms that determine what the money is. And so gold as a rock is just this carrier of human value, of perceptive human value. And so is the dollar. It's not worth the paper in the ink. The paper in the ink is the vehicle. And this is also true for digital ledgers. Digital ledgers like the Wells Fargo ledger is just a carrier of value. And so money is two things. It's one part shared social consensus and it's one part technology. It was one part medium, one part vehicle. And this new vehicle, these new vehicles that we have, these internet public permissionless blockchains like Bitcoin and Ethereum, offer both competitive advantages towards the shared coordination game, but also competitive advantage towards the technology substrate

Starting point is 00:53:26 layer that allows the value, the communication of value to just be better than traditional forms of money. Okay, I think that's a great definition of money. And I think that was important to understand what money is. Because most of the traditional, we don't even think about it. I didn't really think about money, David, probably until I was in my 20s. Like, I mean, what is the nature of money? And why is this thing money? It's so deep in the shared narrative and what we see in TV and how we interact in society that we just, you know, assume money is a particular thing. But crypto always asks us to start at the base layer. You have to ask that question of what money actually is. And so you defined it very well. It's a piece of, you know,

Starting point is 00:54:10 social coordination, and it's also a piece of technology. So let's talk about the parallel money system that we're building. And, you know, at the base layer of that parallel money system, David, is a new base money that we've created. If the current reserve currency of the world is dollars, at one time it was gold, it's no longer gold, gold is still a store of value, It's now the reserve currency. At the M-Zero level, the base money layer is dollars. Crypto is essentially proposing a different alternative. In the crypto-parallel universe, in the Internet universe, the base money is no longer dollars.

Starting point is 00:54:53 What is the base money in this new bankless crypto-parallel universe, David? Let's talk about both Bitcoin and Ether. Yeah, Bitcoin and Ether. And the reason why these things are base money and a very important characteristic of what makes base money, base money, M0, M0, is that it is a bearer asset. If you have it in your hand or if you have it in your possession, there's no other dependency about that. When you have a dollar inside of Wells Fargo, that is not a bearer asset. That is an IOU. So that is an M1 or an M2, a secondary layer.

Starting point is 00:55:29 Base money is inherently a bearer asset. And this is why gold was once the M1. of the world because it is a bearer asset. If you have it in your hands, you have it. There is no, you don't have to depend on anyone else to fulfill the obligation of the value of the money. Cash is another bearer asset, right, David? So that's, again, something if I own cash, if I have a $20 bill, I own that. It's my bearer asset. That's exactly right. And this is what's so cool about Bitcoin and Ether is that these are internet native bearer assets. And what's also really important about these things is that these

Starting point is 00:56:03 bearer assets are determined by cryptography. And this is the fundamental difference between the commercial slash central banking layer versus the Bitcoin or Ethereum layer, is that Bitcoin and Ethereum, they democratize access to these currencies because ownership over these things can be done by owning a private key. And so a private key is a cryptographic hash. It's just a string of random numbers and letters, kind of like a password that goes to your bank account. And whoever owns that password owns whatever is in that new bank account, that digital bank account, that's either on Bitcoin or Ethereum. And so that private key is, the crazy thing about it is like it's 64 characters long and you can write it down and you can even memorize it. There's

Starting point is 00:56:47 these things called seed phrases that turn these into human readable words. The thing is like, you can store these things in your brain. And that is uniquely compelling about this money. is like imagine being able to hold money inside of your brain. And that is so cool. That's so powerful. And what that really does is that puts so much power back into the hands of the individual because they can hold their value inside of their brain. And so there's no way that anyone can ever steal your funds from you if you hold your money inside of your brain

Starting point is 00:57:19 other than some ridiculous mechanism like torture. Like you would have to go so far to extract what people. ownership over their assets are because of the power of cryptography. And even with that, of course, if I used, you know, some violent method to try to extract your private key from your brain, David, of course, I'd have to know that you actually have this amount of money or I wouldn't even know to try to extract it. That's why privacy is also essential here. So this idea of private keys and public keys, I think of private keys, David, is basically,

Starting point is 00:57:52 you know, away the only keys to some lock in, like there's this vault in the cloud, right, somewhere that doesn't exist on the Bitcoin or Ethereum ledger. Think of this, like, visualize this vault here. And if you have private keys to that vault, which again, can be represented by, you know, a string of characters, but also can be represented by 12 words, 24 words. If you know that private key, you're the only person who can unlock that vault. No one else can. No nation state can attack it and open up that vault. No individual, no company. Nobody else can. And so that is what you're talking about. It gives asymmetric power in the hands of the person who's bankless. And this is essentially the underpinnings of the entire

Starting point is 00:58:39 crypto system. This is what enables you to be your own bank and go bankless. So there's this private key. And by the way, if you buy assets, crypto assets on something like a Coinbase or Gemini, you don't have to deal with this because what you're actually getting is an IOU, right? So they hold the private keys. So we'll talk about the levels of going bankless a little bit later in the show. But one of those levels is actually getting a hold of your private keys and starting to use them outside of a crypto exchange, like a Coinbase or a Gemini. So you have these private keys. You also have a public key address, right?

Starting point is 00:59:18 So this is basically a, it's almost like an account address on your checkbook. If you have a checking account and I wanted to send money to your Wells Fargo address, David, you'd have to give me an accounting number, an account number and a routing number. And if I had those things, I could push money in. Now, I can't withdraw money, but I can push money in. So the public key allows me to push money into the crypto system. And these two things together essentially are what allows you to go self-sovereign in the bankless money system. Yeah, my Twitter handle, David Hoffman.eath, or not my Twitter handle, my Twitter name, Davidhoffman.eath, that's my public address.

Starting point is 00:59:58 So you can send me money to Davidhoffman.com. It's a very public thing. It's designed to be shared and spread, right? Because who doesn't want people to send them money to them? And it's that private key that unlocks my Davidhoffman.eith address that I keep very close. to my heart, right? I don't share that with anyone. And so there's this discrepancy here. One is extremely private. One is extremely public. And there are also different ways to maintain privacy so you can have your private addresses that you don't want people to know about and you can have your public addresses that you do want people to know about. The point is you can do whatever you want because these accounts, these crypto accounts, you can generate thousands of private keys and use all of them and you have assurances that no one will have a copy of your private keys.

Starting point is 01:00:41 It's a very powerful piece of technology. Okay, so you said what is money need to be in this new digital system as kind of the base layer? And the thing you said is it has to be a bare asset. It can't be someone else's debt, right? It can't be an IOU type tool. Can we talk about, because we mentioned Bitcoin and Ether as like crypto money at the base layer of this new financial system. Can we talk about Bitcoin first? So what is Bitcoin's value proposition?

Starting point is 01:01:15 Why is Bitcoin worth what it is right now? Yeah, so this is where we get into some fundamental differences between Bitcoin and Ethereum. Bitcoin, the first blockchain, the first crypto asset, it's uniquely compelling because of the assurances that Bitcoin's provide. Bitcoin, and I want to draw a distinction here before I go too much further. When people say Bitcoin, they might be completely. inflating two different things. There's Bitcoin the network and then there's Bitcoins the asset or BTC the asset. So the Bitcoin blockchain, the Bitcoin protocol is a payments protocol for paying

Starting point is 01:01:52 of BTC the asset. And so there's two different things here. BTC the asset is supported by Bitcoin the protocol and BTC the asset is uniquely compelling because of the assurances that it provides the owner. We know for a fact that in the Bitcoin protocol there is a rule. that there will never ever be any more than 21 million Bitcoins. And what this offers is something that the central banks of the world can never ever offer. With all currencies, there comes the ability of issuance, right? All central banks can issue currency. That is their right because they have control over the legitimate money printer. And Bitcoin also has its own money printer. But the uniquely compelling thing about Bitcoin is Bitcoin has the ability to print money,

Starting point is 01:02:37 yet it does not. Yet in the code, it will not. It can't do that. That is in the Bitcoin code. And because code is more trustworthy than human subjective statements, we can have these strongest assurances ever that there will never, ever be any more than 21 million Bitcoins. And what this offers is a new measuring stick for measuring value.

Starting point is 01:03:02 Because the supply of Bitcoins stays the same, and the value of the world can change around the value of Bitcoin. So we can now use this hard cap. This is what people say the word hard cap. Bitcoin is hard capped. It has a finite supply, and that finite supply has cryptographic assurances that will never change. And now we can use those assurances into the long-term future about how to measure value against this new measuring stick because of the hard-cap nature of Bitcoin.

Starting point is 01:03:36 Now, it's not like the dollar in that it's much more volatile, of course. So that is kind of a tradeoff of the base money of these new crypto systems is they are very volatile. They will fluctuate in price. At least they'll fluctuate relative to existing, you know, fiat value systems. So the other thing, of course, that we've created here, David, is digital scarcity. That's something we didn't have in the original Internet. So everything on the internet, of course, can be copy and pasted, right?

Starting point is 01:04:10 If you send some email to me, I can copy the text of that email. I can't send it to someone else. But you can't copy and paste something like Bitcoin because of the crypto economic guarantees that undergird the network. So that creates this new primitive in the story of humanity, the social coordination technologies that we have called digital scarcity, which is super important. and I think we'll talk about a little bit later when we talk about Ethereum. So what can Bitcoin do besides give us this guarantee of its scarcity, of its fixed cap?

Starting point is 01:04:46 I can also send you Bitcoin, right, on a peer-to-peer basis. So if I know your public key in Bitcoin, and I have some Bitcoin, I can use the Bitcoin network to send you some value, at least value denominated in Bitcoin. Is that correct? That's absolutely right. And that's really what Bitcoin's core competency is. Bitcoin is good at storing value because of its scarcity, and it's good at sending Bitcoins.

Starting point is 01:05:13 And that's really all Bitcoin wants to do. It wants to do those two things and those two things alone. It wants to really reduce all of the other kind of crazy crypto-economic stuff that we see going on on other chains because it really just wants to be an M-0 and it wants to be a really, really, really good M0. And so it's kind of, it's actually attempted to strip away other features, right? Like people, other people, projects would use the, the Bitcoin blockchain to like timestamp events. And they would use Bitcoin's block space to record an event like and just make that verifiable in the Bitcoin blockchain. But we haven't really seen those use cases take off. The use cases that we've

Starting point is 01:05:53 primarily seen with Bitcoin is using BTC, the asset as a reserve currency. And then also using Bitcoin the blockchain to transfer BTC the asset. That's why actually, David, I think this meme of Bitcoin as digital gold has held up so well. Like in the early days of Bitcoin, people thought it was going to be all sorts of things, thought the block space of Bitcoin would be useful for other things, like stable coins, for instance, thought that Bitcoin would be more like a peer-to-peer cash. But the meme that's persisted because of its durability and because it's been validated by the truth has been this digital gold meme, which is really what Bitcoin sort of is.

Starting point is 01:06:29 is it's this store of value that exists in the digital world. And how valuable is it? Well, you're essentially making a bet on whether the rest of humanity will adopt it as a money and will choose to store their wealth in it. That is essentially the Bitcoin bet. But there are two limitations of Bitcoin that I want to talk about. And we could start talking about Ethereum and Ether as we get into this. The first limitation is the scalability of the Bitcoin network.

Starting point is 01:07:03 So Bitcoin can do something like five transactions a second, like five to ten transactions per second. So that's not many transactions. It's certainly not enough for everybody in the world to start transmitting Bitcoin in a peer-to-peer fashion. At most, it's maybe enough for dozens or maybe hundreds of crypto banks or nation-strands. to settle transactions between each other. But the typical person that the everyday person is not going to be able to use the Bitcoin network if everyone else is trying to use it at the same time. That's the first limitation.

Starting point is 01:07:40 The second limitation is it can only do that one thing that you mentioned, which is it can only transmit Bitcoin from A to B. So it can't, for instance, host other digitally scarce assets that are not Bitcoin. It is a mono asset network. It's not a poly asset network. It's also not very programmable. So if I want to do other things in the banking system, so sending you money, paying you, David,

Starting point is 01:08:10 is just like one money verb. But if we're talking about replacing the entire financial system and this entire banking stack, there are other things that we need to do with our money. We need to lend it. We need to borrow it. We need to trade one asset for another. We need to use it as a business.

Starting point is 01:08:27 payment, of course. We need to use it to hedge. So we need to save. We need to earn interest on it. So there are all of these other money verbs that just Bitcoin essentially cannot do right now. So enter Ethereum and enter Ether. Can you talk about Ethereum's take on this and where it picks off picks up where Bitcoin left off? And just to reiterate, Bitcoin has its core competency is to be a reserve asset and it's stripped away programmability, like you said. It still has some programs. There are some things that you can do with Bitcoin, but really it's tried to reduce, reduce, reduce to really just its core competency. And when we talk about finance, finance is

Starting point is 01:09:13 money plus if-then statements. And Bitcoin doesn't do very well with if-then statements, like if this, then that, right? Typical coder speak. And that's what Ethereum is uniquely good at. Ethereum is also money in the form of ether, the asset. You know, there's Bitcoin, the blockchain, and BTC the asset, and then there's Ethereum the blockchain in ETH or ETHR the asset. But Ethereum is also a smart contract platform. You might have heard of smart contracts. It's basically, if-then statements, plus money, plus ether the asset,

Starting point is 01:09:45 or other assets on Ethereum. And so the metaphor that people often give out when trying to explain the differences between Bitcoin and Ethereum is Bitcoin is a calculator, it does one thing extremely well, which is calculate numbers and produce outputs. But Ethereum is more of a smartphone. It can do that, and it can also do almost anything else that you can code up and deploy on the Ethereum blockchain. So if you can code something, if you can produce and if this, then that statement, you

Starting point is 01:10:15 can put that into Ethereum and make assets run through Ethereum the code that you deploy. And so Ether is very highly programmable money. In the same way Bitcoin is its own bare asset digital currency. Ether, it's its own bare asset digital currency, but it has the tailwinds of programmability of the Ethereum blockchain behind it. And that is where we go from just Internet money to Internet money and Internet finance. The critique that we often give of Bitcoin is that Bitcoin wants to supplant the U.S. dollar, right? It wants to be the new reserve asset of the world, but it actually doesn't really have a

Starting point is 01:10:58 long-term plan to reduce people's dependency on commercial banks or centralized brokerages or central banks. It really just wants to keep the existing financial system, which will continue to run in parallel, but it really wants that existing financial system to begin to use Bitcoin the asset, rather than the U.S. dollar as a reserve currency. Ethereum has, I think, in my opinion, more ambitious plans, which is to also provide an alternative base asset, an alternative reserve currency, but also be able to create natively digital financial institutions, natively digital banks and bank accounts that exist as protocols on Ethereum. We talked about the social scalability of protocols earlier. Well, Ethereum is a protocol for protocols. And so you can actually put

Starting point is 01:11:47 protocols on top of Ethereum. You may, and this is basically what DFI is, Uniswap. It's a protocol on top of Ethereum. MakerDAO protocol, compound, AVE, all these applications that you've heard about in the defy universe are protocols on top of Ethereum that we can send assets to. And that, and that brings me to, I think, what is a core difference between Bitcoin and Ethereum. Bitcoin the network or Bitcoin the blockchain serves BTC the asset. The point of Bitcoin is to produce BTC, the asset. On Ethereum, this is reversed, where ether, the currency or ether the asset, is meant to power Ethereum the system, Ethereum the blockchain, Ethereum the economy. And this is why Ethereum is so cool in my eyes is that it's not just a system for transferring ether

Starting point is 01:12:34 the asset. It can host economic activity. It can be a platform for generalized economic activity because not only is there ether on Ethereum, there are many, many other assets as well. We call these things tokens. There are currency tokens like USDC, which represents a dollar. There are defy assets that govern over protocols like Uni or AVE or MKR. There are tokenized versions of gold. There's tokenized versions of real estate. There's tokenized art. There's any asset that you can really think of can be and is being put on top of

Starting point is 01:13:09 of Ethereum. And because it's on Ethereum, all of these assets have this programmable nature, this if this, then that statement. And so Ethereum is really this marriage between digital assets and programmability. And the limitations on that are limitless. There are no limitations on what we can do with that because we have a fully expressive system in Ethereum.

Starting point is 01:13:32 What it allows us to do, David, is to create the entire financial system from the ground up and create this parallel financial system that we've been talking about the whole side, whereas the whole time, whereas Bitcoin you said its aspirations are to replace the dollar. And that's even super ambitious, right? Like, you know, the bull case for Bitcoin is maybe that it replaces gold.

Starting point is 01:13:58 It's very hard to see how it replaces an entire nation-state's financial system. But the mandate of Ethereum is essentially to create an entire decentralized banking system from the ground up. David, I have this graphic in front of us right here. So if you're on YouTube, guys, you could see this. if you're listening on the podcast, we will attempt to describe it. But this is actually published in the St. Louis Fed. And it's a diagram from somebody actually created in the Bankless Nation, Fabian. And he sort of created the Defi stack, as he calls it, or the Bankless stack, as we might call it.

Starting point is 01:14:36 And the base layer of this stack is the settlement layer, right? So the traditional financial system, the settlement layer might be done through something like Fedwire or Swift. is how this is a financial network, you know, the way banks essentially settle transactions between themselves and it's essentially controlled. Well, in this parallel financial system, we have Ethereum as the settlement network at the base level here. And of course, we have ether, the asset that serves as a base money. And then a layer up, we have the asset layer, which we can talk about. Then we have the protocol layer. These are all the D5 protocols that David was mentioning. Then we have the application layer and the aggregation layer, and he lays this out

Starting point is 01:15:21 really nicely in this in this defy stack diagram. David, maybe we could talk about a couple of those layers. So you described Ethereum and what it does is essentially it serves as almost like a property rights system for digital scarcity for the internet. It settles assets of any type. So whether if it's an asset that represents a stable coin like the dollar, or whether that's an asset that represents a piece of digital art, you can settle this, you know, permissionlessly on the Ethereum network. And settlement means you move it from one, you know, private key account to another private key account, right? So it's, it's settlement in sort of a peer-to-peer type way. But let's talk about this next layer up, David, which is the asset layer. And there's two types of

Starting point is 01:16:12 of tokens I think people should be familiar with on the bankless journey. The first is an ERC 20 token that represents a standard. The second is an ERC 721 token. Can you describe what these two different tokens are, maybe in terms that we'll understand a bit better? ERC stands for Ethereum Request for Comments, and that title actually doesn't really matter too much, ironically. Think of TCPIP or SMS.

Starting point is 01:16:42 is a similar thing. It's a standard. It's a protocol that people agree to use. It's a social consensus, by social consensus. And so ERC 20 is one of the earliest deployments to the Ethereum blockchain that people agreed would just be the standard that we use for ERC 20 tokens. And ERC 20 tokens are fungible tokens, fungible assets. And maybe you don't know what the word fungible means, but you know it in practice. If you have two $1 bills and one, one, is crinkly and old and has like graffiti on it and maybe it's ripped in places. And then you have another dollar that's pristine that you just got to the bank, got from the bank. Both of these things are worth $1 and you kind of don't really care which one you have because they're fungible, right? And then we can also take $10 bills and those are equal to $1, $10 bills because they're fungible, right? They're interchangeable. And currencies are like this and many other things as well. And then there's also the alternative to that on the opposite end of the spectrum is ERC 721. Again, ERC 721 is just a standard, the 721 standard that got put into Ethereum.

Starting point is 01:17:48 We don't really think too much hard about the numbers behind these things. It's just what people settled on. ERC 721s are unique assets. They are the opposite of fungible assets. They're non-fungible. One asset is unique and different from another asset. Because in the real world, this could be like the specific painting that you got from a painter that you hang on the wall.

Starting point is 01:18:10 It could also be the D to your house. because the deed to your house is not the same deed for another person's house or the title to your car, or your diploma, or your certification, or anything that is a unique contract between two people. One contract is one specific asset that is unique. And so it's non-fundable. You can't interchange these things. And these are really basically the only two types of assets that exist in the world. And therefore, they are replicated.

Starting point is 01:18:37 This truth is replicated on Ethereum. Because again, Ethereum is trying to replicate and build an alternative financial system. And so we need to replicate traditional financial instruments and be able to allow them to exist on Ethereum. And that's really what these two token types do. Yeah, great description, right? So like, you know, think of standards that we now accept, like JPEG or GIF on the Internet. These are image standards. At one time, you know, these were new to people, right?

Starting point is 01:19:06 but they digitized existing analog images into the digital world. That's what ERC20s are and ERC 721s are, essentially. So ERC20s are tokens, as David said. So stocks, bonds, currencies, things that are fungible with one another, they can fit in the ERC 20 category and be represented by tokens. And then collectibles, art pieces, things that are unique and non-fungible can be represented. Baseball cards. whatever.

Starting point is 01:19:37 Yeah, they can be represented by ERC 721s. And you may have heard the term NFTs to describe these, or niftys. NFT just stands for non-fungible token. And it's the same thing as an ERC 721. So this is the asset layer. And of course, anything that is created on the asset layer, and by the way, creation of these tokens is completely permissionless. So it's permissionless like the internet.

Starting point is 01:20:02 If I want to create a website, I don't have to ask anyone's permit. I just have to find a server and publish the code somewhere. In the same way, that's what it takes essentially to create an ERC 20 or an ERC 721, any token. I can just create it permissionlessly. I pay a fee and gas in order to mint that. That is essentially the compute mechanism for settling something on Ethereum. It's measured in gas, it's called. We'll get into that in a little bit.

Starting point is 01:20:33 But once created, that then settles on the Ethereum network. So we've got a settlement layer. We've got an asset layer. The next layer up, David, which gets really interesting, is the protocol layer. These are DFI protocols, decentralized finance protocols, as you've heard of them. And David was describing some like Uniswap, like AVE. You may have heard of these defy protocol primitives. But they essentially allow us to do the money verbs like exchanging, like lending, like derivative products.

Starting point is 01:21:09 Basically, anything that exists in the traditional financial world can be represented in some way on the protocol layer here, David. And we've often talked about defy and crypto in general as it's like it's speed running through the last 500 years of finance. right so you know from the base money layer to like collateral backed loans to credit type loans we are replicating the traditional financial system in crypto can you talk a little bit more about this protocol layer and maybe give us some defy protocol examples here the protocol layer is where assets achieve logic achieve financial logic right the protocol layer is where the if this then that statement gets embedded in. And just for context, like the Bitcoin blockchain, again, for the podcast listeners, we have five layers here. We start at the settlement layer. This is the protocol.

Starting point is 01:22:03 Then we have the asset layer. And above that is the protocol layer. And above that is the application layer. And then above that is the aggregation layer. Bitcoin is just the settlement layer and the asset layer. There's Bitcoin, the settlement system. And then there's BTC, the asset. And by the way, The asset layer, it's only Bitcoin in that asset layer, right? Right, yes. No ERC20s, no ERC 721s. Exactly, just BTC the asset. And this is why Ethereum is so cool,

Starting point is 01:22:30 is because Ethereum and its smart contract capabilities have these additional layers on top of it that allow us to disintermediate more things. And that starts at the protocol layer. The protocol that probably everyone listening here knows first or learns about first is uniswap. This is basically a very simple exchange protocol for people that want to exchange two different ERC20 tokens. So if you have token A and you want token B, you can go to the UNISWAP protocol and you can get that done.

Starting point is 01:23:03 And you will be able to deposit one token and withdraw a different token of an equivalent amount of value minus a fee. There are lending protocols such as compound or AVE, and this is where you can deposit your assets and earn yield denominated in that. asset, right? And so you can take USDC to compound and deposit your $100,000 into compound, a borrowing and lending protocol. And then you'll be able to earn an interest rate on your USDC or your ETH or any other token that is part of the compound protocol. There are other borrowing and lending protocols such as AVEA, DYDX is a borrowing and lending protocol. And there's also derivatives. DYDX is also a derivatives protocol. Synthetics, it creates a synthetic asset protocol. There are so many, so many protocols. This is basically what we're talking about is defy. And why defy decentralized finance is so cool

Starting point is 01:23:59 is now it's this open sandbox for developers who love to tinker and now have the ability to access this open free permissionless sandbox to tinker with finance, tinker with assets, tinker with value. This is not, we've never been able to put finance. We've never been able to put finance, financial tinkering or financial innovation behind the people who code. And the people who code love to code. And what we're finding is that people are really experimenting on Ethereum with creating new financial primitives that we could never have unlocked before. And really the best part about this thing is all these protocols on Ethereum,

Starting point is 01:24:36 the goal is to disintermediate the legacy financial system. Uniswap is a protocol where the New York Stock Exchange is a centralized server with a centralized company, right? Like compound and Ave, these are protocols where in the legacy world where your SOFI is a centralized lending service, there are all these legacy companies that are now instead protocols on Ethereum that return value back to the hands of the people that use them because they don't extract fees, right? They don't have employees that they have to pay.

Starting point is 01:25:12 They don't have shareholders that they have to pay dividends to. They're just protocols. They're extremely thin and they are just tools for you to live your financial life without having to get gouged by an intermediary. Remember, we defined the term protocols earlier, and I want to just underline that for you. So what is a protocol is just a set of rules, and ideally those rules are credibly neutral. This is best, I think, expressed in something like Uniswap. So Uniswap runs on Ethereum, and it will trade one asset for another. And it's just a set of code and rules.

Starting point is 01:25:50 There's no centralized intermediary that can tell you that, no, we won't list this asset. Yes, we will list that asset. So it's completely permissionless. And it runs without the uniswap team entirely. If the entire uniswop team, which is like right now, a team of 15 people, were to disappear, uniswap would continually run. So this is something that finances has never seen. Most of financial transactions have been conducted through banks, through these centralized intermediaries. But this credible neutrality of protocols unlock something completely new for civilization.

Starting point is 01:26:30 And again, it makes it so that these systems are permissionless. They're open. They can't be shut off. They can be forked in all of these different ways. The other thing I wanted to emphasize here, David, in the protocol layer, is a term we use so often on bankless that you actually coined. and it's become sort of a meme within crypto is when we think of protocols and DFI protocols in particular, these are like Legos. And so people have called these, we've called these money Legos essentially because once you have Lego primitives like the ability to exchange or the

Starting point is 01:27:02 ability to lend or you have a asset that is essentially a stable asset. So it doesn't deviate very far from the dollar and it's not volatile. like Ether or Bitcoin is. Once you have these primitives, then you can construct them in all sorts of different ways and create increasingly complex constructions. And that's where we start to get to the level of being able to replace the financial system. And I think people don't understand, David, the rate at which the developers are tinkering here, right? And I mean, think of hundreds of thousands of developers around the world, all economically

Starting point is 01:27:44 incentivized to build really cool things on this open permissionless decentralization decentralized money system right that's what the banks are up against right the banks with their 500,000 or so executives making decisions not really innovating like I mean maybe maybe building a new interface for you once in a while they have to compete with this open ecosystem of developers who are incented to drink their milkshake. That's what they're up against. And these these protocols, these defy applications essentially could be stacked on top of one another in order to build increasingly more complicated, more sophisticated, more interesting things. There's a very important concept that we talk often about in the bankless universe called the protocol sync thesis.

Starting point is 01:28:38 And what this means is that some protocols are more secure than others. This is a very nascent technology. And protocols are being stress tested. And this is different than a protocol or a standard, like a GIF or TCPIP where like, you know, there's not too much to lose if like TCPIP, at least when the genesis of the internet was occurring. If we got TCPIP wrong, there was not, there was communication loss. In DFI, if protocols break, there's value loss. And that's a much bigger deal. That's people's money and assets. And so this is why this industry is a little bit hairy is because there are some protocols that are better than others. And there are some protocols that are more vulnerable than others. And this is a constant learning process. But

Starting point is 01:29:23 nevertheless, the ability to stack protocols together is so incredibly powerful that this is where the future of financial innovation is going to be because this is not something that we could ever replicate in a legacy world. Financial walled gardens, don't do so well with financial innovation. If Wells Fargo and Citibank want to collaborate on some sort of financial product, they don't really do that because they want to keep that walled garden up. The thing about Ethereum is that it's inherently an inside-out system. And so when Uniswap is deployed to Ethereum, which it has been,

Starting point is 01:30:00 that means that not only can people use Uniswap, but other protocols can use Uniswap. And these protocols start to stack up against and on top of, each other. And the protocol sync references that the best protocols, the most hardened and secure protocols, will sink to the bottom and be leveraged by not just other people, but by almost all other applications and protocols. And so Uniswap, we would consider to be very, very deep in the protocol sync because of how dependable and secure it is. And then we work our way up the stack. And each protocol offers more and more surface area for other protocols to build on top of.

Starting point is 01:30:40 And so there is both compound and uniswap. And then there are applications that build on top of both of these things that offer a third protocol. And so like we've seen Pool Together do this where Pool Together is built on top of compound and Maker Dow. And then it also uses Uniswap in the background. And so that is a third protocol that leverages three protocols beneath it to execute its protocol. And so there has been a Cambriy. an explosion of financial innovation as developers plug and play with different protocols and create their own protocols, which then developers can plug and play with again. And so there is a

Starting point is 01:31:21 little bit of riskiness here because there's a lot of tinkering and sometimes this composability can cause unintended consequences and that's bad. But also it creates this immense, immense, like creative landscape of possibility with what can be done, which is not something that humanity has ever seen before. Yeah. Another, I guess, point, worth emphasizing on the protocol sync thesis is that the most credibly neutral protocols tend to sink to the bottom and become the basis for other protocols as well. Uniswap is nice because it is maximally decentralized. The code just runs autonomously. It's a fairly simple code, actually. Other defy protocols are less decentralized. And we talk about this model called the defy trust

Starting point is 01:32:07 spectrum that, you know, kind of shows, shows the difference. On one side, you have fully decentralized, more autonomous protocols, much more like a uniswap. On the other side, you have a code that essentially has operators still behind it, and that people can tinker with and is more centralized. So in this protocol layer, there could be a spectrum of things. It's not all autonomous, super decentralized protocols. Some of these assets can actually have corollaries in the real world. For example, the stable coin USDC, for every USDC that is a dollar that's issued, there's a dollar in a bank account somewhere in the traditional world that is much less decentralized than some other stablecoin assets like a Rye or a die that you'll get into

Starting point is 01:32:58 as you go through bankless and get into some more advanced topics. So there is this spectrum of decentralization as well. The fact that that spectrum exists, I think, is a good one. There are many, many people that are decentralization maximalists who only want to see fully decentralized protocols. And that's a very tall order. Decentralization and uniswap level of decentralization and trustlessness is very hard to achieve. And that's one of the reasons why uniswap is so compelling. Mimicking that level of trustlessness and decentralization is a hard thing to do. So I'm actually happy that there is this spectrum of trustlessness and decentralization that we can play with because not all things I think are optimum to be maximally decentralized.

Starting point is 01:33:46 I think there's plenty of value in hybrid centralized decentralized, as we saw with USC. We would never be able to have USDA without some sort of compromise on our trustlessness. Having the spectrum where people can make things that need to be centralized, centralized, and make things that can be decentralized, decentralized, I think it's extremely valuable. One of the things that we talked about that gets us, of course, this gets us, is the ability for anyone in the world who has an Ethereum address to use uniswap without a centralized intermediary. So this is the ability to trade any digital asset without a third party, without a bank, without anyone else's permission.

Starting point is 01:34:29 So this is a huge unlock for huge. humanity for civilization for like our money coordination systems. The other thing that's so interesting to me about Defi, David, is how much one developer can actually do. So similar to the internet where you could create a website like Reddit and if it was good enough, it could put traditional media companies out of business. So like, bye-bye New York Times, right? We've got this new website that does everything you do better and it's instantly available distributed to a audience. This allows developers essentially to disintermediate banks from their home office, right? So Uniswap, which we keep coming back to because it is a fantastic example of a defy protocol,

Starting point is 01:35:18 was developed by one guy. And it was his first coding project. And he did it for less than $100,000, right? I think it was less than $10,000. It was a $10,000 grant that got him started. So this is the point that anybody in the world can start chipping away at the existing financial system, you know, in a permissionless way. And it's inexpensive to do that. It's cheap to do that because you have the settlement layer out of the box. You have the asset layer out of the box and all of these things compound as well. So, David, we should talk about the last two layers here in the bankless money stack.

Starting point is 01:35:56 This is the application layer and the aggregation layer. I think not a ton to talk about here necessarily because there are tons of examples of these things. But one example on the application layer might be something like a Coinbase, which is actually an application that uses this entire money stack. That's a crypto bank that uses this money stack. Another application example might be a portfolio viewer like a Xerion or a Zapper that taps into all of these money protocols and gives you a user interface into your portfolio. and your Ethereum address and into what's going on. Do you want to talk about anything on the application or aggregation layer here? That's a great place to end with, I think, because there's so many protocols out there.

Starting point is 01:36:40 There's uniswap for exchange. There's also sushi swap for exchange, and 0x for exchange, macha for exchange. And then with lending, there's also, I could list off five protocols for derivatives. I could list off so many asset management, so many, so many protocols. Do you need to memorize all of these things? Like, do you need to understand, like, what the URL for every single protocol website's front-end interface is? No, no, you don't.

Starting point is 01:37:04 You can just go to the aggregation layer, which Ryan said is like things like Xer or Zappa, which I use on a daily basis, which will give me a summary of all my assets that I have, and then also it will give me options for what I want to do with my assets, and it will route what I want to do accordingly to how I want to do it. So if I have a bunch of USC in my wallet and I want to trade it for ether, I can just go to Xerion or Zapper and say, hey, sell my USC for Ether. And then Xerion or Zapper will actually route my trade, my order through Ethereum in an optimal way so that all of those protocols are totally obfuscated. And this is what people are used to. You know, when people are used to Robin Hood,

Starting point is 01:37:47 there's a bunch of logic going on beneath the hood of Robin Hood that makes things seamless and automatic. And this is what the aggregation layer does for people. It aggregates all the protocols, and it does all of the legwork of making the right move according to the instructions that you give it, and it does all of it for you. And at the end of the day, the UI on these things is absolutely fantastic. There's a little bit of a learning curve to get into crypto. But once you get over that learning curve, this user aggregation layer is such a treat to use. It's just superpowers. Like you say, it's superpowers for your money and finances. Yeah, we're so used to the traditional model in the traditional banking system of

Starting point is 01:38:27 the user interface being tied to your bank account. So if I want to access my Wells Fargo account, I have to go to the Wells Fargo website. And I'm dealing with their crappy user interface. I can't do anything else with it. But with DeFi, with crypto, essentially I could plug my Ethereum address, which again is like your crypto bank account into any user interface. And these interfaces are constantly improving, constantly one-upping each other, constantly getting better and better. So already the user experience, people say that the user experience of crypto isn't yet as good as, or is bad, right? And that's true in some areas, but in other ways, it's absolutely not true. In other ways, the user experience of crypto is a 10x or 100x that of traditional finance right here, right now today, but is getting better at a much faster rate. So super excited about this application layer and also the aggregation layer. But in total, that compiles, the defy money stack. This is the parallel financial system that we think is destined to replace the traditional financial

Starting point is 01:39:35 system, or at least assume a lot of the capital, a lot of the value from the traditional financial system. Hey guys, don't go anywhere. There is so much left in this podcast. Once we get back from the break, Ryan and I go into the value proposition behind ether, the asset, which we call ether the triple point asset. We talk about the three different asset superclasses and where ether and other assets fit inside of those asset superclasses. We then talk about defy tokens and how they represent pseudo equity tokens in this new defy universe.

Starting point is 01:40:09 We also talk about the inevitability of crypto. Why is it inevitable that crypto is going to dominate the financial landscape of the future? And then we finish up with some action items, how to actually go bankless, how to set up a crypto account, how to manage a private key. and then what to do next and what does that unlock. We're doing our best to condense the most amount of information into one single episode, which means there's so much left to talk about. But first, we have to talk about some of these fantastic sponsors that make this show possible. Synthetics is Ethereum's decentralized derivatives liquidity protocol.

Starting point is 01:40:44 What does that mean? Synthetics is a platform for creating and trading synthetic assets, which are assets that are priced via an Oracle rather than bids or asks. Traders can use the Quenta Exchange, which hosts and trades all of the synthetic assets created by synthetics. Traders on Quenta can trade synthetic tokens like SBTC, S-Oil, or S-D-Fi. Because Quinta is powered by synthetics, traders experience zero slippage on their trades. No, I didn't mean low slippage. I meant no slippage, because that is the power of the synthetics platform.

Starting point is 01:41:18 No slippage on your trades. You can also easily short assets with I-Synths, which are synthetic-assilic assets that move inversely to their target asset. Synthetics isn't just for traders. Developers can build on synthetics to access the infinite liquidity offered by synthetic assets. Or investors can stake collateral to the protocol and earn fees that the protocol collects. If you're a trader and you're looking for a trading platform not found in the legacy world, check out quenta.io.

Starting point is 01:41:45 If you're a developer or you just want to earn yield on your collateral, go to www. Synthetics.io, where you can stake your S&X or ETH and earn fees from synthetics. If you want to live a bankless life, you've got to get yourself a monolith defy visa card. Monolith is a one-two punch. It's both an Ethereum smart contract wallet and a visa card that lets you spend the money you hold in your Ethereum account anywhere visa is accepted. This is super cool. You can swipe your card. at the coffee shop, at the gas station. When you do, you're paying with crypto all without a bank.

Starting point is 01:42:27 This has been the crypto vision since day one, and it's here. Monolith also offers on ramps for getting your fiat into the world of defy. So it's trivial to top up your monolith card. Whenever you need to, you can top it up with ETH, die, or defy tokens. And because Monolith is native defy infrastructure, the money that you hold not only never touches a bank, but it retains its defy superpowers. So you can swap assets on uniswap, you can earn yield and defy protocols. You've never had a visa card like this before. Go to monolith.xyz now and sign up to get your monolith card. That's monolith.xyz. David, this is the point at which I think we need to

Starting point is 01:43:13 circle back and talk about ether as an asset, because ether is a very important money primitive as well inside of this, inside of this financial stack in the same way that Bitcoin is in the Bitcoin network. Can you talk about ether as an asset? And let's talk about an idea that we kind of created on the bankless program that helps illustrate the value proposition of ether, which is the triple point asset thesis. What is the triple point asset thesis and how does it apply to ether the asset? Yeah, this is so cool. And this is a great example of why programmability on Ethereum is so powerful. So there are three asset superclasses.

Starting point is 01:43:59 And this is true before crypto. And crypto is, all the crypto assets that we talk about fall into one of these three asset superclasses. All assets fall into one of these three asset superclasses. And the three asset superclasses are capital assets, which are assets that produce yield. Like, for example, if you own real estate, you can produce rents with or if you own an equity, you can receive a dividend. Capital assets produce yield over time.

Starting point is 01:44:27 Then there is store of value assets, which are things that are uniquely good at holding value across time. Gold is a store of value asset. Interestingly, real estate is also a store of value asset. These things are intrinsically scarce, and they don't decay over time, at least not very much. Currency and money like the US dollar is also a store of value asset, but some sort of value assets are better than others.

Starting point is 01:44:52 Many people would argue that gold is perhaps a better store of value over time than the U.S. dollar because back in 1970 when the United States defaulted from the dollar and the gold standard, one ounce of gold, I think, was worth like $30 or $50, and now today one ounce of gold is worth $2,000 or something crazy amount like that. So not all store value assets hold the same amount of store of value. Anyways, that's store of value. And then the third type of asset superclasses is, transformable or consumable assets. And these are what I'd like to call one-time use assets or assets that

Starting point is 01:45:27 you consume in order to produce something else or to achieve a goal. And so like, for example, wheat. Wheat, you can have it as one asset and then you can do something with it and then it can become bread and then it's a better asset or the gasoline in your car. That is a consumable, transformable asset that allows you to go from, you know, your home to your work, allows you to produce something better. And really, energy, I think, is such a fantastic consumable asset. And those are the three asset superclasses. So, David, before you go on, I want to emphasize that that point that you made about real estate is that an asset can span multiple asset superclasses. So you mentioned that real estate, of course, is a capital asset. It produces a cash flow.

Starting point is 01:46:11 But it is also a store of value because if you, you know, you know, you know, you know, you know, you are looking to store your value for the long run and you're wealthy enough. You don't necessarily store your value into something like the dollar that can be inflated away. You store it in capital assets like real estate or like stocks. So assets can be one asset superclass or they can be multiple asset superclasses. So is that correct? Yeah, that's absolutely correct. Gold is both a store of value asset, but it's also a consumable, transformable asset because it's used in industry, right?

Starting point is 01:46:44 It's used in electronics to pass data. And so there's many different assets that transcend more than just one, more than just one asset superclass. So that brings us to Ether then. And, you know, the triple point asset thesis. So does that have something to do with these assets superclasses? Absolutely. And so this is what Ether, the asset is uniquely compelling.

Starting point is 01:47:09 Why it's so uniquely compelling. We have never seen one asset transcend. all three asset superclasses until ether the asset. So ether is a capital asset because of proof of stake, which is Ethereum's consensus mechanism. This is a very deep subject that we don't have time to go into on this episode. Check out our episode with Vitalik Buterin on designing Ethereum, where we go into why proof of stake is a very strong consensus mechanism.

Starting point is 01:47:39 But basically, ether, you can stake your ether, which means basically that you lock up 32 or more ether into a contract on Ethereum, and then you are allowed to participate in network consensus, which if you promise to not lie about processing transactions, you will receive ether dividends. Again, this is very complicated subject, but the point is you can stake your ether to receive ether denominated dividends, and that's how ether becomes a capital asset. Ether is also a store of value asset. It is the main trustless store of value, inside of DeFi. And it's the only asset inside of the defy that has the level of disintermediated, damn it. Once again, it's the only asset in DeFi that has the level of trustlessness that it does have.

Starting point is 01:48:30 There's no other asset in defy that has the permissionlessness and trustlessness that Ether does. Like USDC, the currency that represents a dollar, that's also in DeFi. But ultimately at the end the day, you have to trust that the USDA is in the bank. With ether, because ether is native to Ethereum, there aren't any intermediaries between Ether the asset and DFI protocols, which means the DeFi protocols love Ether the asset as collateral that runs that program. So as a valuable asset, ether inside of Ethereum is, there's no competition for the trustlessness for ether of the asset. So it's a great store of value because of the assurances that it offers. lastly, the third asset superclass is consumable, transformable assets. And ether is, again,

Starting point is 01:49:20 uniquely positioned inside of Ethereum because it is what we call gas for processing transactions. If you've ever made a transaction on the Ethereum blockchain, you know that you have to spend a little bit of ether to pay for the people that are validating those transactions. And so you pay ether to the network. And then that ether is actually what is paid to the validators or currently the miners and in the future proof of stake the validators, and that's what pays them a little bit of that ether cash flow that turns into their capital asset. That comes from people using ether as gas for Ethereum. Now there's this future change to Ethereum called EIP-1559 that will actually go from instead of just paying the transactor to the staker that share of ether,

Starting point is 01:50:07 it goes to burning ether, which is a whole another rabbit hole that's worthwhile to go down, that we don't have time to go into here. But the point is, is that ether powers Ethereum. If you want to make something happen on Ethereum, you have to pay the network a little bit of ether. And that makes it a transformable, consumable asset. And so as a function of the Ethereum economy, more and more ether needs to get consumed as gas

Starting point is 01:50:32 to power the Ethereum economy. And so the amount that ether, the asset, will be used as gas that powers Ethereum, will be a function of the magnitude of the size of the Ethereum economy. The fact that all three of these asset superclasses are combined inside of one asset, which is ether, is so incredibly revolutionary, and that I'm just so excited to see how this plays out, because it's a really interesting story.

Starting point is 01:50:57 I think the metaphor of triple point asset comes from kind of the state of states of matter, you know, metaphor, or the states of matter that we all learned, which is basically like, you know, matter can be a gas, a liquid, or a solid, and ether can be a capital asset, a commodity, or a store of value, a transformable, rather, or a store of value depending on how you use it. So it spans all three of those things. It's interesting to contrast that to Bitcoin, because Bitcoin is a store of value asset, we talked about, this kind of meme of digital gold. People put their wealth in Bitcoin for the future, as is ether. People can use ether for the same thing. And of course,

Starting point is 01:51:34 Ether, as you mentioned, David, is also a great trustless collateral for this entire defy economy. In fact, the only trustless collateral for this defy economy, so it's a store of value. Anyway, Bitcoin is also a store of value. Bitcoin is also a commodity because Bitcoin is used to pay for transactions on the Bitcoin network. So it's also a transformable in the way that ether is. People often overlook that.

Starting point is 01:52:02 They're so fascinated with Bitcoin being used. as a store of value that they forget that actually if you do a transaction on the Bitcoin network, you have to pay in Bitcoin. So it's a consumable in that way as well. But it's not, Bitcoin is not a capital asset. So you cannot use Bitcoin to produce cash flows denominated in Bitcoin in the network in the way that you can with Ether. With Ether, you can stake it, you can put it inside of a smart contract in the Ethereum network, and it will provide yield to you. This almost reminds me of like a T bill. We sort of use that analogy, a treasury bill.

Starting point is 01:52:38 So if you have dollars, the government will say, you know, we will accept your dollars and we will provide you a yield for those in the form of a treasury bond. And you get yield for your dollars. You can do the same thing in the Ethereum economy. Essentially take your ether and you stake it, you bond it, and you receive a relatively risk-free return on the ether that you stake. that's what makes ether a capital asset. And again, this is so incredibly revolutionary because the eth stake rate or the amount of yearly

Starting point is 01:53:11 dividends you get from staking your ether, in my mind, that is like the new internet bond. That is a bond market that's baked into the internet itself because this is a protocol, right? And so we now have this hybrid bond market protocol that uses ether the asset to run. And likewise, taking that comparison even further, bond markets are meant to power treasuries, are meant to specifically power the U.S. treasury, but also corporate treasuries. And with the United States bond market, you can actually, the United States as a network, as an economy, protects itself with the bond market. It financializes and funds itself with the bond market.

Starting point is 01:53:55 And Ethereum, and its proof of stake, is proof of stake system. is using ether the asset and the Ethereum bond market to provide security for the Ethereum blockchain. So the comparisons here, I think, are really strong. Yeah, absolutely. Okay, so we've kind of described broad strokes what the bankless money system is. I think we should put a bow around this topic of crypto monies at the base layer. So we consider Bitcoin and Ether as the two primary crypto monies. I think first it's worth maybe contrasting them and then talking about all of the other competing blockchains, because there are a lot. If people go to any market capitalist things, you'll see a lot of other competing blockchains. But first, let's contrast

Starting point is 01:54:40 Bitcoin and Ethereum, because we're of the mindset that the two chains are symbiotic. Bitcoin helps Ethereum. Ethereum helps Bitcoin. They're growing the pie together. Despite the tribalism that you might see in the crypto space, the reality is Bitcoin is good for Ethereum, and Ethereum is good for Bitcoin. But they are distinct. And I think they're distinct on two dimensions. There's two different experiments, grand experiments in crypto going on. First is a different monetary experiment.

Starting point is 01:55:11 So Bitcoin's monetary policy, and that is the rate of issuance, how it issues currency. And of course, it issues currency to secure itself, to protect the network. It is fixed cap. So you said earlier, there shall only be 21 million Bitcoin that is baked into, the algorithms of Bitcoin. And if that ever changed, if somebody tried to change that, of course, Bitcoin would fork and it would probably no longer be called Bitcoin. So there's this fixed cap monetary experiment going on. Ethereum's monetary experiment is not that. It is minimum necessary issuance. So it tries to balance its issuance and the amount of ether that it issues on an

Starting point is 01:55:53 annual basis with security because of course all of the currency that you issue, whether it's Bitcoin or Ether, actually goes to pay for the security of the network. In Bitcoin's case, because it is fixed cap, that security budget denominated in Bitcoin runs out after a certain amount of time. In Ethereum, it keeps going. But the goal of Ethereum is to minimize that issuance to as low as possible, as close to zero as possible. Right now it's about four and a half percent in once staking is fully implemented, it'll drop down to 1%. EIP 1559 might drop it down into the negative territory. We have an entire episode on this, episode two. You should check that out if you're curious. So there's these two grand monetary experiments going on here. But there's

Starting point is 01:56:41 also these two grand banking experiments going on. We showed earlier that Bitcoin has sort of the the base layer asset money system does that, but its network only provides peer to peer transition of Bitcoin. It doesn't support multiple assets. It doesn't support the ability to program against it and to create defy applications. At least it doesn't do that very well in any meaningful way. So that means, David, that the Bitcoin network is very reliant on these centralized intermediaries, some of which we love, some of which are super helpful, that we call crypto banks. So these are exchanges like Gemini, like Coinbase, like Binance. These are fantastic bridges from the traditional financial world into this new world because

Starting point is 01:57:29 they will allow you to upload your fiat, upload your cash into the crypto world. But they are starting to do all of the other things that the traditional banking system does today. So they're starting to provide lending and borrowing and derivatives. and of course they always have provided trading. And so the worry here is that Bitcoin is so reliant on these crypto banks that what ends up happening with the Bitcoin experiment is we don't completely replace banking at all. We just create a new set of bankers.

Starting point is 01:58:05 And of course, the Ethereum experiment goes a couple levels up and it replaces the entire commercial banking layer with this decentralized finance D5 protocol layer so that we can be completely full. free of the banking apparatus. We're no longer in-controlled by the bank. So it's a completion of the crypto vision. And these two banking experiments are playing out as well. How do you see it? Yeah, that makes a ton of sense to me. And I don't want to discredit like the Bitcoin value proposition. The hard cap finite supply value proposition of Bitcoin is so incredibly strong, so incredibly

Starting point is 01:58:43 valuable. We live in a world where it's easy to mint new assets. companies can mint new equity central banks can mint new currency but no one can can mint new bitcoins and that's actually not even something that ethereum even tries to compete with it doesn't really even want to compete with that but on ethereum uh the ethereum protocol issues new ether every single block to ensure that it has security and so there's a different um prioritization of values with these things and bitcoin prioritizes unprintability and assurances around such and you're totally right. Its biggest weaknesses is that it tried to achieve this goal so well and so hard that it's sacrificed being able to have its own native financial system. But it has Ethereum. And so while Bitcoin is

Starting point is 01:59:34 dependent on crypto banks like Coinbase or Gemini, and also which in the future could be Wells Fargo, because all of a sudden Wells Fargo just has to accept Bitcoin and all of a sudden it's a Bitcoin bank. Earlier in this episode, we talked about how Bitcoin doesn't really want to replace the financial system. It just kind of wants to replace the U.S. dollar. It's a good start, but we want to replace the financial system. We want Bitcoin on Ethereum. And one of my thesis for the world is that Bitcoin is actually more useful on Ethereum. And there are many different teams or implementations trying to port Bitcoin over to Ethereum. And it is definitely possible, but it relies on that trust spectrum, right? And so Bitcoin on Ethereum has perhaps some intermediaries or some protocols

Starting point is 02:00:18 that perhaps have some risk embedded into them. But my version of the future is that Bitcoin can achieve what it wants to achieve, and it will achieve it better when it's on Ethereum. And so I think the marriage between these two systems, I think are going to be really, really powerful. Like you said, Bitcoin is better because of Ethereum, and Ethereum is better because of Bitcoin. Absolutely.

Starting point is 02:00:41 And, you know, this other stakeholder that we haven't given much attention to, though we did just briefly when we talked about how, Bitcoin scales are these crypto banks, right? So these are exchanges, as I mentioned, like Coinbase, like Gemini. But they're also increasingly providing lending capabilities, like Block 5, for instance, provides borrowing and lending based on crypto. I'm sure Coinbase and others will follow suit. They're starting to issue credit cards. This is all great because we absolutely need a bridge from the fiat world to this new world. And we need to make that as easy as possible.

Starting point is 02:01:20 So the bankless program is super supportive of all of these bridges that bring more people and more capital into crypto. But the thing about a bridge is you don't set up home on a bridge, right? You cross the bridge and you get to the other side. And we do not believe that the final destination for this self-sovereign money journey is necessarily inside of a crypto bank. We think a crypto bank is much more valuable than your traditional financial system. I'll take Gemini over Wells Fargo any day of the week, but you know what I'll take over both, is my Ethereum address, self-sovereign, full control over my assets. And that is the substrate on which we need to build this bankless money system. We don't want a new set of bankers

Starting point is 02:02:07 replacing the old bankers. So we are constantly mindful of that, constantly cautious of that. and constantly pushing to move crypto in the direction of most decentralized, as decentralized as possible. There are some other things we could get into when we talk about and compare in contrast, Bitcoin versus Ethereum. I think you should listen to Episode 2, which talks about sort of the tradeoffs of a fixed cap monetary policy versus minimum necessary issuance. There are definitely some tradeoffs there. And it's not certain, you know, how Bitcoin will continue to pay for security in the future. You know, so there's some back and forth there. But do some due diligence on that. Check that out. I guess, David, we should probably conclude this section by talking about

Starting point is 02:02:56 why do we spend so much time on Bitcoin and Ether? And why do we consider Bitcoin and Ether the base monetary assets of this new crypto money system. What about all the others? What about EOS or ADA or XRP, like coin? Like all of these other crypto assets when people look at the top 100 crypto, are we just Bitcoin and Ether maximalists? Like what's going on here? Talk about that.

Starting point is 02:03:27 Yeah, it's a really important subject. And I think this is a subject that a lot of new entrants into the crypto industry don't it's a hard it's a hard thing to understand until a lot of people miss it uh there is certain sets of values or ethos that is baked into this cryptocurrency industry and the first and foremost is decentralization and just because you are a cryptocurrency doesn't mean you are decentralized right like their decentralization is a spectrum and eos or a like coin are at different places on places on this spectrum than bitcoin or ether um and or ethereum so that it's all it's important to understand that decentralization needs to be upheld the most because that is

Starting point is 02:04:06 what this entire industry is pinned upon. If there is centralization in a system, it can have its head cut off, right? And that's bad because this is why David Chom's Digi Cash in the 1980s never worked out is because it was this new, trustless form of payments, but it had this centralized company, and that was its weakness. That was its downfall. Any centralization is a liability on a network. So that's really important to understand. But really the most important thing to understand is really what makes these crypto economic systems, Bitcoin and Ethereum, sustainable, is demand for what their product is. And their product is block space.

Starting point is 02:04:46 Bitcoin has one block every 10 minutes. It's roughly one megabyte large. And if you want to get your Bitcoin transaction included into that block that only goes out every 10 minutes, you need to pay a fee to outbid all the other people that, also want to get their transaction in the Ethereum block. A transaction takes up space. I think a Bitcoin transaction is like 13 kilobytes or something. And that takes up space in the Bitcoin blockchain.

Starting point is 02:05:12 And you have to outbid people to get that done. And when you make that bid, you are paying Bitcoin miners, BTC, as an incentive for inclusion, which is how Bitcoin can secure itself, is fees from people that want to transact in Bitcoin to blockchain. And this is also equally true with Ethereum. Ethereum also has block space.

Starting point is 02:05:35 It's an extremely high demand. You might have heard how expensive Ethereum is or how high the gas fees are. What that means is that there's block space on Ethereum and is going for an extremely high price. And there is a direct connection between the demand for block space and the fees that these systems are able to charge for selling their block space and the scarcity of the asset of the network. So Ether specifically has the, what Ryan said, the minimum viable issuance monetary policy. And what that means is that if Ethereum can charge higher and higher fees for his block space, it actually needs to issue Ether less and less and less. And so the more valuable Ethereum's block space is, the less and less ether issuance there needs to be to secure Ethereum the blockchain.

Starting point is 02:06:27 So the more fees that these systems generate, the stronger and more resilient and more sustainable these blockchains are. And why we draw a line between Bitcoin and Ethereum is that Bitcoin and Ethereum are the only two crypto-economic systems that have demand for their block space. Bitcoin and Ethereum blocks have been full for years. I think Ether's block space has been full for ever since 2017 and Bitcoin block space has been full

Starting point is 02:06:55 ever since like 2013 or 2014, a hundred percent capacity, which means there is a bidding war between people that want to get their transaction into the blockchain. Other blockchains do not have this category. Eos blocks, light coin blocks, like whatever. There are zero other blockchains other than Bitcoin and Ethereum that have full blocks. People don't want to transact on these systems like how they want to transact on Bitcoin and Ethereum.

Starting point is 02:07:22 And that is why Bitcoin and Ether are. specifically money because both of these things are sufficiently decentralized and censorship resistant and the asset is inherently scarce because the systems that these assets run on are sustainable and they don't need to issue further currency to pay for security above and beyond what they are collecting in fees. Yeah, absolutely. And I want to put a fine point on what you said about decentralization because this gets back to the credible neutrality of the monetary system, right? The question for any money is who has the ability to print more of it, right? For Bitcoin, it's very difficult to print more. Essentially, if somebody tried to create more than 21 million

Starting point is 02:08:07 Bitcoin, the entire network would reject it. They would run different code. They would stick to the original Bitcoin. It would no longer be Bitcoin. There's social consensus at the bottom layer. The same is true of Ethereum. If somebody, even let's say it was Vitalik, decided that he, you know, he wanted to issue more ether for some sort of governance proposal that would make the world a better place or extend humanity's life or whatever Vidalic is into. He couldn't do it because the social contract for Ethereum is minimum necessary issuance. And if he did try to do that, the Ethereum blockchain would fork away and use a different version of the code. So these two networks have strong social consensus on their monetary policy and on their issuance policy.

Starting point is 02:08:55 Other blockchains don't necessarily have this. Many of them have something called on-chain governance, which essentially enables the people who hold the token. And those are generally like you might call them the plutocracy, the shareholders of the token, would have the ability to vote on issuance. And let's say they wanted to increase the issuance of their chain. Well, everyone in majority say I, and like, let's say there's 10 people that own over 50%, the change goes through. Something like the Binance smart chain, for instance, does not have a monetary premium

Starting point is 02:09:27 because CZ, the owner of Binance, can inflate B&B any time he wants. So the credible neutrality of the monetary system just isn't present in most of these competitors. And the fact remains that Bitcoin is absolutely dominant in its category of, like digital gold replacement. And ether is dominant in its category of smart contract platform backed by a store of value asset. That said, I think the bankless program, and we are open to what comes down the pike. So I don't necessarily think that Bitcoin and Ether are the final last word on the monetary assets to hold in this emerging crypto economy. So we have our eyes peeled for monies and for other chains that exhibit the values and the characteristics that we have talked

Starting point is 02:10:22 about and have kind of the credible neutrality and the protocol sync necessary to become dominant crypto monies. We just haven't seen it in other chains yet. It doesn't mean we won't in the future. So if you're on the bankless journey, you've got to keep your eyes open as well. Yeah, people will often identify or name call in this cryptocurrency industry as like, oh, you're a Bitcoin maximilist or, oh, you're an ether maximilist. I think me and Ryan are really bankless maximalists. If there is a crypto system that provides tools to help people go bankless in an incredibly neutral way, then I would include that into the regularly scheduled programming.

Starting point is 02:11:03 As soon as I see another blockchain that has full blocks implying that people are, the block space is insufficient. efficient demand that people actually want to transact on it, I will start to include that into my mental models. But right now there's only two blockchains that have full blocks, and that's Bitcoin and Ethereum. Absolutely. There's so much more in the bankless program. We talk about why a monetary premium is so important in a base layer asset. You could find all of those materials in previous podcast. David, we have to find what the bankless money stack is. Can we talk about why now it's the time? And this like maybe allows us to zoom out for a minute and look at kind of macro, look at just societal impacts.

Starting point is 02:11:47 Why is now the time for crypto and why is now the time to go bankless? Yeah, the answer to that is because of game theory, right? We talked about this social coordination game that is money, where as soon as people start to coordinate and focus on a new money, there's an incentive to do that. And people always want to be using the best money possible. Ryan, I know there's something that you're extremely familiar with called Gresham's Law. Maybe you can explain to us what Gresham's Law is. Yeah, so this is the idea that bad money drives good money out of circulation whenever the two come into competition.

Starting point is 02:12:24 For example, if there are two forms of a commodity money in circulation and both are accepted by law at a similar face value, the more valuable commodity money will gradually disappear from circulation. This makes intuitive sense, right? So if you have two sets of money, let's say you have, you know, Argentine pesos and you're in Argentina, and they're being inflated away, and then you have maybe gold or maybe dollars. Which one are you going to spend first? Well, you're going to keep your good money and your bad money. You're going to spend that first. You're going to get rid of that.

Starting point is 02:12:59 So the good money goes out of circulation. So what you're talking about from a game theory perspective, just to kind of link this together, is that if we live in a world where the money printer is printing, and it seems like we have lived in that world for the last 10 years, and it looks like the next decade will continue towards that and maybe accelerate that, well, where are people going to keep their money? If the U.S. dollar or even other fiat currencies become bad money, they're continuously being inflated away, they no longer hold their value, well, people are going to store their wealth in the good money. And that might mean digitally scarce assets like Ether, like Bitcoin. Those will be held driven out of circulation, essentially.

Starting point is 02:13:52 And so, you know, why now? The game theory behind the money printer is essentially why now? I'm reminded of when the first round of U.S. stimulus checks went out for $1,200. And Brian Armstrong tweeted out this picture of deposits into, Coinbase. For those I don't know, Brian Armstrong is the CEO of Coinbase, which is the largest exchange in the United States. And so right after the $1,200 stimulus checks got sent out to everyone, Brian Armstrong tweeted out this amount of dollar deposits into Coinbase of varying sizes. And like it was from like $900 to $1,500, except the, it was a bar graph. And the bar graph at $1,200

Starting point is 02:14:32 was through the roof, right? Because everyone got $1,200. And so what were they doing? They were taken their $1,200 stemming checks, they were sending it to Coinbase so they could buy Bitcoin and Ether. And this is an example of people when the value of the dollar is deflating, people will flee to better ways to store their own value, store their own wealth. And so they will take whatever cash they have and they will hold the one that is not being inflated and they will spend the one that is being inflated so that they can get the value that it is worth at the moment that they sell it before it devalues. So this is just classic game theory. The other game theory aspect that's worth mentioning is how these things are internet native, internet scaled. And so, you know,

Starting point is 02:15:18 like we were saying at the beginning of this podcast, the dollar does extremely well inside the domain of the United States. It also does well outside the United States because it's the reserve currency for the globe because of the petro dollar. But there's other currencies that don't have those tailwinds, like the yuan, the euro. And money is a shelling point. game. It's a coordination game. And because Bitcoin and Ether are monies that exist on the internet, it can attract the attention of not just people that live inside or domiciled inside of a specific geographic region, but if you are connected to the internet, Bitcoin and Ether can be money for you. Because, and because this is true, and everyone else knows this is true, everyone can

Starting point is 02:15:59 look towards these new internet monies as potentially the money of the future, especially in times where not just the United States Federal Reserve, but all central banks are printing new currency, printing new fiat, there is already this massive global incentive to get rid of your inflating money for a better money. And there's also this massive incentive to pick the same money that everyone else is also going to pick.

Starting point is 02:16:26 And the only monies that people can also pick are the money that exist on the internet. And those are Bitcoin and Ether. And so the game theory behind the value of these current is so incredibly strong. It makes me really optimistic about the future. So, David, you were mentioning internet compatible money, and I think that's really important because all of us are digital natives now. More of our world happens in the digital sphere than the analog sphere. COVID, of course, has just accelerated that trend, but it's a trend that's been ongoing. You know, it seems anachronistic

Starting point is 02:17:00 for the future of money to be something like gold if the future of money is, is not. not a nation state store of value, then why would we go back to the old days? It seems like the future would have to be something that is digitally native, that is internet native. What do you think? And I think this is more and more intuitive the younger and younger people get. I think the older generations might have a hard time understanding digital currencies. I think that conversation is getting easier, but it's not even a conversation that we even need to have with the millennials and the zoomers. they are on board with digital money.

Starting point is 02:17:38 It's just intuitive to them. The digital money is great for smartphones and computers, which is something that the zoomers and the millennials have grown up with. And things are just moving into becoming a digital realm. Everything is becoming digital. And now we finally have the opportunity for our money to become digital. Yeah, I think among younger generations, it's actually harder to explain the value proposition of gold.

Starting point is 02:18:03 Like, why would you hold gold bars, like useless chunks of metal? What is that? You know, and it's much more intuitive for them to hold a digitally scarce monetary assets that are bare instruments. So there's definitely a demographic shift that's going on. We have many baby boomers that are members of the bankless program. There's lots of capital in the baby boomer generation. But this is also going to be a demographic shift as well. And I can't imagine in the next 30 years for the value of gold and the growth of gold to outsource.

Starting point is 02:18:35 strip the growth of something that these new generations support more, which is digital gold, which is digital assets. And this is also true even of the recognition of digital scarcity. So we're talking about these non-fungible tokens earlier. Well, these are completely intuitive to younger generations who grew up on like Fortnite and video games with all of these various economies and skins. This is just so native to them. There's a sense of inevitability about it. The other reason I think we are ripe for crypto is this growing, I'm just to call it a populist type movement that we've seen over the past 10 years and that seems to be accelerating and almost hitting a crescendo.

Starting point is 02:19:20 This idea of a bankless money, this idea of a money for the people by the people is incredibly attractive to society who has been kind of disenfranchised and feels cheated by the traditional banking system and the traditional financial system. And what I think crypto offers that that's kind of unique, David, is we are not talking about tearing things down here, right? Let the legacy traditional financial system be the legacy traditional financial system. We're not here to tear that down. We're here to build something new and build something better and to invite everyone over to this new financial system. And it's opt in, right? Like so this is a movement that channels populism in a very healthy direction, in my opinion, because we're not talking about setting fires to things

Starting point is 02:20:09 and burning things down. We're talking about building things up from the bottom up. And I think it's very important as we enter into what might be a tumultuous period of time in human history, the 2020s, that we have productive outlets for this populist movement. That's what crypto is. That's what bankless is. It's money by the people for the people. And that's what Bitcoin and Ethereum truly are. And the opt-in nature of these things is truly important because we've never had a money or financial system that wasn't just part of the substrate that we breathed in because of nation states, right? Like you are born in America, therefore you are made an American citizen, and therefore now you have to use the American currency and use the American commercial

Starting point is 02:20:54 banking layer. And then this is true for every single country that exists, right? The fundamental rules of how nation states exist is you are born into them and then you, you, you are forced to use their system. And because everyone else uses that system, no one really questions it. But now we have the internet. Now we have the digital nation. Now we have the bankless nation where people can opt into these systems. And the reason why people opt in is because Bitcoin and Ethereum offer incentives for opting in that nation states can't offer.

Starting point is 02:21:25 Nation states offer a disincentive to use their money, which is to inflate it away. And so they're actually disincentivizing the usage of the dollar and incentivizing the use of Bitcoin and Ethereum. And every time somebody opts into Bitcoin and Ethereum, they are doing it of their own volition because these things provided value to the people that are opting in, right? It's inherently voluntary, which means that these things have to be competitive. And that is why this system is always going to, is why the system is inevitable. is because these things have to earn people's usage and it's going to do that. And the legacy system doesn't have to earn people's usage. It just gets it by default because it's never had a competitor.

Starting point is 02:22:12 The legacy financial, commercial banking, central banking layer has never had true competitors. It's a pretty monolithic system with no other way for people to exit until now, until Bitcoin, until Ethereum. Absolutely. And it is, of course, true that defy and crypto will have to. to earn it. We'll have to earn these new individuals. And I'm optimistic about that, David, because the last reason I think the time is now is because I legitimately believe we are building a better financial system, right? Try to get a millennial, try to get a Zoomer to write a paper check. How cumbersome does that feel? Or to wire money in person from a bank account or to fill out

Starting point is 02:22:50 reams of paperwork in order to take out a loan versus going to your Ethereum account, you know, making a metamast transaction, paying a gas fee, and being a... able to do all of these things in like an automatic way. This is a better financial system, and it's also credibly neutral for the people, by the people, as you said. The time is now, my friend, the time is now to go bankless. What this new financial system doesn't ask for is your passport or driver's license. It doesn't ask if you're a male or a female. It doesn't ask your ethnicity. It doesn't ask your credit score. It doesn't ask your sexual preferences. It doesn't ask your ancestry. It doesn't care about your human identity as an individual. It just cares

Starting point is 02:23:33 that you can use it. Right. And so there is no gatekeeping an Ethereum and Bitcoin. There is no stopping anyone from using these systems. And so as a great equalizer, I believe in the great equalizing nature of these technologies as it relates to getting financial services out to people that were historically perhaps marginalized and disenfranchised from using traditional financial tools. And David, not to get too sci-fi on what is supposed to be a beginner's episode, but I think many of the biggest users of financial services in the future won't actually be human beings. There'll be other money robots. And, you know, this is an environment and an ecosystem that is finally tuned for financial robots interacting with other financial robots.

Starting point is 02:24:22 And I think as people go through the bankless system, they'll start to understand what we mean by these autonomous money robots and the capabilities that they will have in the future. It's an exciting area. All right, David, we've covered all of the areas like why to go bankless, what the defy stack looks like, why the time is now. I think what people are hungry for at this point in the podcast is how do I get started an answer to that question. So David, take us through. Somebody is going from the Fiat legacy system from zero to one. How do they get started on their bankless journey? It's three easy steps.

Starting point is 02:25:01 And so let's go through all three of them and then I'll go back to the first one. The first one is you need to get your hands on crypto money. Like we've been saying, the whole foundation of this whole entire revolution starts with the money. That's Bitcoin and Ether. And what you need to do is you need to get some sort of, you need to get a, service provider that can help you bridge your bank account to your crypto account, right? And these are exchanges. This is Gemini. This is Coinbase, Crackin. There's many, many different exchanges. I personally use Gemini. Ryan, I know you also use Gemini as well. Coinbase is also a very

Starting point is 02:25:37 popular one for people inside the United States. And what that allows you to do is it allows you to transfer the dollars that you have in your Wells Fargo account, which you're trusting with Wells Fargo, and ask Wells Fargo to transfer your dollars to Gemini or to Coinbase, and then they're custoding your dollars, except Gemini and Coinbase allow you to swap your dollars for Bitcoin or Ether. And that's step one. Now you have crypto monies. This is David, this is the bridge we've been talking about the whole time. The bridge from that old financial system, that old financial world to this new financial world. Coinbase, Gemini, Crack and Binance, these crypto exchanges are the bridge. Absolutely. That's exactly right. And there's no way around this bridge,

Starting point is 02:26:17 because these are two different universes. They speak two different languages. There's no decentralized way to do this. We need to go through centralized intermediaries because the old world is centralized. And so because the old world is centralized, we need centralized bridges. But once you're there, once you're on that bridge

Starting point is 02:26:34 and you're on Gemini and you've purchased your ether or your Bitcoin, the next step is to take self-custody. And this is something that traditionally can't be replicated very well in the legacy financial world. If you want to take self-custody of your, money from Wells Fargo, you go and take a withdrawal in cash and then you have your cash, but then you're like, well, this is actually less valuable to me because it's not in the financial system. It's in my hand. I can't go pay for stuff like I typically do. When crypto is the opposite,

Starting point is 02:27:02 crypto is actually more useful if it's in your own custody. And there are so many ways to take your own custody over your own assets. And you might have heard the phrase, be your own bank. This is what taking self-custody means is that you are the one holding your assets by either a private key that you've managed to memorize or a hardware wallet like this ledger that I have right here that manages my private keys for me. There's also a meta mask wallet, which is a browser extension on top of Chrome. There's Argent wallet, which is an application on your phone. There are many, many, many ways to manage your private key and therefore manage your own funds. and once you have your self-management of your own funds, there's a certain amount of power or self-sovereignty that you get with that

Starting point is 02:27:47 because you have your money and no one can take it away from you. And so so many bad things could happen around the world, but if you still have your private keys, you still have your money no matter what. That means you can plug in anywhere that has an internet connection. You have access to your digital assets. No one can take them away from you. Great power, great responsibility.

Starting point is 02:28:09 as we go from step one to step two, risk increases as well because you need to level up. You need to actually understand what it takes to hold your crypto assets. And if you don't do it right, you could end up losing your crypto assets, which is why it's so important to get educated on this. This is, you know, if we think about the 2020s, this is going to be the base level financial education. Everyone's going to have to learn how to do some level of private key management or understand what it is to actually manage.

Starting point is 02:28:39 their own crypto. And if you're starting now, it's a great place to be. You want to start at the beginning of things. So we've got step one, David, get crypto monies on exchange, got it. Step two, take self-custody. We have resources and bank lists that can help you. But what is step three? After I've got custody of my crypto assets and I'm set up in these wallets, what do I do that? The next step after that is Defi. And this is where your assets become useful. And so if you have ever invested in the stock market with your brokerage or with Robin Hood, or if you've put your money into a high interest savings account, or if you've done something with your money, this is the same thing,

Starting point is 02:29:18 but now we're doing it in Ethereum on DFI protocols, right? And so once you take self-custody, you can start to begin to use applications like Uniswap for trading. You can begin to use applications like compound for borrowing and lending. You can take your assets, you can put it in your, compound and then you can borrow against your assets and the assets that you've deposited in compound are earning yield for you and then the amount of money that you've borrowed from compound you owe an interest rate too and you use that collateral to backstop your loans then there's derivatives synthetic assets there's so much beyond just these basic preliminary defy primitives but

Starting point is 02:29:58 it all starts with taking custody of your own assets because once you have custody in your own assets you can then send your assets into defy and start using some of that smart contracting layer part of Ethereum that allows your assets to become useful and to gain yield and to increase your wealth opportunities. Yeah, and it's important to mention that it takes some time to go from here to there. You don't have to do all of this overnight and you need to be comfortable with each step. Some people, for instance, don't have the ambition and really the interest in going all the way from step one to step three.

Starting point is 02:30:32 And that's fine. So like my parents are a great example of this. They can happily own some crypto assets on a centralized exchange and be perfectly fine. So they're still living partially a bankless life because they're exiting some of their fiat to this new bankless money system, but they're not going all the way bankless. All the way bankless eventually means you hit two kind of flippinnings in your life. One is you see the first flippinging where your total net worth in the crypto money system exceeds your total net worth in the traditional financial system. That's the first flippinging. You have more money over here in the bankless money system than you have in the traditional

Starting point is 02:31:12 money system. The second flippinging is where you finally close your traditional bank accounts because you're not using them anymore. And I think of this a little bit like, you know, canceling a newspaper subscription, somebody in the 90s. It wakes up they've been getting a newspaper subscription their entire life. But then they're realizing, wow, I consume more and more information. on the internet and on websites, I no longer need a newspaper subscription.

Starting point is 02:31:36 So I'm just going to hit the cancel button on that. And I'm going to live a more digitally native life. That, I think, is what will happen to all of us on the bankless journey. You don't have to do it overnight. You only do it where it's practical. But at least you are on the journey and you know how to do this. And you'll be able to front run the opportunity because you are a step ahead of the curve if you are on the bankless journey.

Starting point is 02:31:59 closing out your own bank account like very few people have gone that far down the bankless path but that is the end goal both Ryan and I here we hold the majority of our wealth in crypto monies natively on Ethereum we custody our own money and we generally just use our bank accounts as little as possible I still have my bank account that's because like you know everyone kind of still needs a bank account these days but I kind of have it relegated to the back of my mind I don't really think about it anymore I really think about my Ethereum account all the time because that's where my money is. And so really I think the evolution of this is fewer and fewer people will actually open up bank accounts. I think there are people and kids being born today or perhaps that have already been born that will never open up a bank account because what they can do on Ethereum will suit their needs just fine.

Starting point is 02:32:48 And there will be enough people on Ethereum where they don't need their bank account. And I look forward to the day where I actually do close down my bank account. Very few people have gotten that far, but more and more. are getting there every single day. Yeah, and I will say it is the case for me that even my, this interim step, this bridge step, my Coinbase and Gemini accounts, they are far more valuable to me than my traditional Wells Fargo account. So I've already started the migration, already started the transition. And I expect, as you said, many more will do this.

Starting point is 02:33:20 It takes a lot to learn, though. To get from one to three, this is not something you accomplish like overnight. There are some steps like... Or even in weeks or months. Even in weeks or months. Even just to send a transaction on the Ethereum network, for instance, you need to know how to custody your own keys. You need to know what gas is. You need to know how much to send. There's some user experience pain. So we always talk about this journey. It's like the like the journey west, right? It's like it's for those seeking opportunity. Recognize that there's going to be some hardship along the way. Like this is not for everyone. The comfy life is over on the East Coast.

Starting point is 02:33:59 But if you are looking for this new land of opportunity, and that is part of the reason we're going, and you're willing to suffer some of those things, if you're willing to be a pioneer, someone who lives on the frontier, then the bankless journey might be for you. We'll talk about the risk, because there are certainly risk,

Starting point is 02:34:18 but there are also rewards on the other side. David, before we do that, I want to get to another question, I think will be asked at this point. So the first question is, okay, how do I get started? But the very next question, after how do I get started? You gave the three steps is, all right, what do I buy? What do I buy? Right? And, you know, for this, I think we have some, like, this is not financial advice. We have some general guidelines. But the bankless thesis is to put a majority of your money on that base layer, majority of your Fiat money on that base layer monetary assets. So, monies. Bitcoin and Ether are crypto monies. So you want to put a healthy allocation of your crypto portfolio into the crypto monies like Bitcoin and Ether. And then you want to invest in the banking layer over top of it. So this could be the more centralized crypto banking layer, like if Coinbase IPOs, for instance,

Starting point is 02:35:14 you might pick up some Coinbase stock, for instance. But we're very bullish as well on this defy banking layer. These are DeFi protocols. All of the protocols, that we were talking about earlier like Uniswap and AVE, each of these have capital assets associated with them. So these are governance tokens, but they do potentially in the future entitle a token holder to cash flow rights on these protocols. So you can almost think of them as like new pseudo-stocks essentially, new banking stocks in this new crypto money system. They're not quite stocks. They don't have legal guarantees, but they could and will. enable you to a right to get some of the cash flows of this new crypto money system. So these are

Starting point is 02:36:00 defy tokens and there are indices that you can buy. One is called the defy pulse index where you can actually get the top 10 defy tokens in one index. You don't have to worry about which defy protocol is going to be king in the future or not. You just invest in an index. So David, I would say it's the answer to the question of what should I buy? Make sure you have a half. healthy allocation of crypto monies. So, ETH and Bitcoin. And then also a healthy allocation to this banking layer, defy money protocols. And you can buy that through an indecis. And I know you've got like a, you're quick and dirty, a third, a third, a third. Why don't you talk about that for a second? Yeah, there is another index which Ryan and I are big fans of called the Bed Index, which is

Starting point is 02:36:47 Bitcoin, Ether, and DPI. Right. So in addition to the DPI index, there's another index, which has DPI in it, but also Bitcoin and Ether. And I think these three domains are really the big three categories that are really going to propel value in the future. Bitcoin and Ether are the big crypto monies. These are the new benchmarks. And then there's the DeFi tokens, which represent the pseudo-equity of the DeFi market.

Starting point is 02:37:15 Ryan, earlier, you talked about the flippings that people have when they come into crypto. First people migrate the majority of their value, then the majority of their economic activity, and then they close their bank account. Along in that process comes a very important turning point, which I think you and I, I'm definitely over the hub on this, and I'm pretty sure you are too, is what currency do you denominate in? And traditionally, people will denominate things in dollars. Like, oh, my coffee is $3. There comes a time where the value of Bitcoin or the value of ether becomes so valuable to you because you understand it, or at least I'm

Starting point is 02:37:52 speaking from experience, is that you start to denominate in crypto monies. And so when I make a, when I make a purchase or when I make an investment, I'm not benchmarking versus a dollar anymore. I'm benchmarking versus ether because I think ether is a great crypto money. And many bitcoins will denominate with Bitcoin because it's a good measuring stick of value. That is a huge threshold to get across. And so when you are making these defy token investments, I think it's actually much more appropriate to evaluate them in ether terms, rather. than in U.S. dollar terms because they trade against ether as the native money of Ethereum. And so that's, I think, a very important concept to take away with.

Starting point is 02:38:31 Yeah, totally agree. Very much in this crypto money system, holding ether and holding defy gives you kind of exposure to the Ethereum economy and the bankless economy writ large, right? So in the same way that if you want exposure to the U.S. economy, you buy the S&P 500, while these are the assets that give you exposure to the Ethereum economy and the bankless economy. The other question folks ask, of course, is, all right, guys, what percentage of my total wealth should I allocate to crypto? And let me just say, that is a question that David and I cannot answer for you, because your circumstances might vary.

Starting point is 02:39:13 We can tell you some kind of general things of what people do. Once again, this is not financial advice. It depends what you need the money for, what your long-term outlook is, what stage in life you're in. But what I will say is if you are younger, if you are a millennial or zoomer, you want to have a much larger allocation of your portfolio to crypto than if you're older. So crypto is highly volatile. but when you zoom out every three year period, every four year period, it massively outperforms any other asset class that you would buy. So if you're buying crypto, you have to allocate for a long-term perspective.

Starting point is 02:39:59 So like don't just buy to flip it in a month or a year. Like buy for a decade-long horizon. And if you're willing to do that and you have faith in crypto to that extent and you're younger, allocate a higher portion of your portfolio to crypto. I know some people who use what we call the crypto barbell strategy, where they basically, they'll have really riskless assets like T-bills, treasury bills or something like that. They'll have on one side of the barbell. They'll have nothing in the middle. So no stocks, no bonds, really no real estate.

Starting point is 02:40:35 And they'll have a ton of crypto on the other side. That's an interesting balance because it gives you the upside exposure of crypto. But you always have that safety net to fall back on with the other side of the barbell and having kind of low-risk T-bills. That's kind of a way I like to think about a crypto portfolio. I don't have a lot of faith in stocks and bonds and other assets relative to crypto. But it's very important that you don't risk more than you can afford to lose in this market space.

Starting point is 02:41:11 There's all sorts of hazards on the road. David, what would you add to that? Yeah, I would say the number one rule for investing in crypto is to never position yourself in such a way that you could lose the game and not be able to play. And what this means is that, like, maybe you take a risky investment and then you are gambling your rent money and then that investment doesn't work out and so you have to sell and now you don't have any crypto anymore. Don't do that.

Starting point is 02:41:39 Always you can, it's okay to take risky investments, but make sure that when you play, your bets that you are placing your bets in a way that if you lose, you can still play the game. And so one way to do this is to just slowly dollar cost average your way into crypto, maybe just like a small portion of your paycheck every single week. Maybe you start with 1% of your net worth and then you move to two and then you move to three, but you do it over a long time horizon. This is a once in a lifetime opportunity and messing that up would be catastrophic. And so there should be some amount of risk-averseness and practicality because while people consider these things risky because they're volatile, I actually think that the better frame of mind is that it's better to make sure that you are always playing the game and you are always having exposure to these things and not getting out over your skis too far too fast.

Starting point is 02:42:32 And then because this is a once-in-a-lifetime opportunity, we don't have the ability to go back and do a do-over if you mess this up. Yes, all that said, of course, I think if you talk to a traditional financial advisor, they will skew to an allocation that is far too light on crypto. So if you're talking to someone and they're like, hey, just 1% of your net worth, you know, 2% of your net worth and you're in your 20s, you're in your 30s, that is probably way too low for the type of exposure you need in this new asset class. As David said, the internet doesn't come along very often, an opportunity like the internet. Most of us, listening to this, many of us, were too young to get in on the innovation, the potential that was the internet.

Starting point is 02:43:15 But we're not too young for crypto. We're here the right time, the right moment. But you don't expect a crypto-like opportunity 20 years from now. You've got to take advantage of it. You've got to start the journey. One other underrated way, I think, to get exposure to crypto is set up a way to earn crypto. As David was saying, this is an entire economy that is. is being created. You can, you can, you can write, you can construct media, you can work for

Starting point is 02:43:42 protocols, you can do art and issue NFT tokens. You can earn crypto in this new economy that way. So if you don't have the cash right now to invest in crypto, and a lot of us don't have the cash to put forward in crypto, learn about this space and figure out ways to earn crypto, figure out ways to work for protocols, there's a massive amount of job opportunities, career opportunities that are going to be created in this industry too. And that's another reason to get in now. Yeah, we should definitely be looking at the price graphs of Bitcoin and Ether in 2020 and 2021. And the market cap that has been piled onto these things are in the billions and billions of dollars. And especially with defy protocols and their defy tokens, like Ryan said, some

Starting point is 02:44:30 Defi protocols have hundreds of millions of dollars in their treasury that they are looking to pay people for their labor. In addition to that, the NFT industry, the art industry where people are making digital art are selling for pretty lucrative sums. So if you're an artist, maybe look there. If you are just a community manager or somebody who's good at just writing or content production, go into the Discord channels of Defi protocols because they are looking for valuable community members. Ryan, I have a prediction that Ethereum will generate more jobs than the top 100 companies in the SMP 500 combined over the next decade. And it's because the amount of valuable surface area, employable surface area on Ethereum is so incredibly large. And if you are looking for ways to

Starting point is 02:45:17 break into this industry, all you have to do is try a little bit. Just go and sneak under and peek under the hood. There are job opportunities everywhere for people that have proven to be able to contribute value. So first step is to get your education. And second step is to start contributing value into the industry. Well said. Everyone talks about the GDP of the U.S., the GDP of China, these big nation states. Well, the GDP of the Ethereum economy is going to 10x is going to 100x over this decade.

Starting point is 02:45:46 So there's a tremendous amount of opportunity there. Okay, so that's how you get started. Those three steps, some allocation of your portfolio. We talked about this. Bankless also provides reasonable. resources for you. So this entire program was created to help people on the bankless journey. One of those resources is the bankless podcast, which you're listening to an episode of. We issued this. We put this out in video form so you can check it out on YouTube.

Starting point is 02:46:13 If you subscribe, we also push it out in audio form so you can listen to it that way. In general, we try to get the bankless message to you and bankless resources to you in all of the different mediums of media. that are available. We also have a newsletter that we publish. So there's an entire program built around this to help you and those who want to go on the bankless journey equip you with the resources that you need to figure out this crypto landscape. David, you want to get into some of the details of what is in the bankless program. Yeah, it's so funny when I'm looking for information about some certain defy protocol or I want to learn how to do something. I'll go and type it into Google. And the bankless newsletter will be the first thing to show up on like how to do x in defy and if you are

Starting point is 02:47:03 looking for specific information about stuff in ethereum bankless probably has content for you so definitely check out the bankless guide which is our index of all the useful tactics and information and theses and articles and it's just a treasure trove of content the bankless podcast and youtube every monday is a podcast which is a deep dive into one specific topic with one guest. On Tuesdays, we do our state of the nation, which is something in the news cycle. And that's a live stream on YouTube. On Fridays, we do the weekly roll-ups. On Wednesdays, we do AMAs. And that's just for YouTube and podcasts. That's not including the newsletter, which on the newsletters, there's the Market Mondays, the tactic Tuesdays, writers Wednesdays, token Thursdays. And then for the

Starting point is 02:47:49 people that subscribe to the bankless newsletter for the for the paid side of things, there's also the bankless discord, the bankless community, where the bankless nation meets. And so if you want camaraderie and support and help, one of the most useful places that exists in crypto is the bankless community inside the bankless discord. And so if you want that, that's available to premium subscribers of the bankless program. Yeah, absolutely. I can't emphasize enough the value of community. You know, when pioneers were going west, they hitched their wagons together, right? Because they recognize there was, there was like strength in community. And the only way to survive on the frontier was through these communities with people who are

Starting point is 02:48:31 helping one another. There are all sorts of risks in Defi in crypto guys. There are scams. There are hacks. There are false promises. There's ways to lose all your crypto assets. If you lose your private keys, you need a community of veterans who have experienced some these things.

Starting point is 02:48:49 The way I learn the most is honestly through other people in the crypto community, in the defy community and we've built a fantastic community of pioneers in the bankless nation. So tune into that. All right, David, we should kind of conclude with this because we've talked about all of the opportunities and all of the potential. I feel like people, once they've gotten to this point and I heard us describe this, they're probably hyped up. They're probably really excited.

Starting point is 02:49:15 They want to start now. They want to do this. But we have to also issue almost a warning about this space because it's not for everybody. Crypto is not for everybody. And I, you know, I think it's important that that people take that message and let it sink in. Because with all of the reward and upside potential, and if we're right about this industry, it's bankless money system, like 10x upside, 100x upside. Like there's massive opportunity, massive upside.

Starting point is 02:49:46 If we're wrong, right, you could lose what you put in. And not only that, when you're out on the journey using some of these these protocols, and tools, there's all sorts of bad things that could happen. Can you talk a little bit about the risks that are involved in the bankless journey when we start heading west? Yeah, the risks are almost infinite, right? Because they come in all different shapes and sizes. And so somebody that's mastered the realm of crypto today, it doesn't mean that they've actually mastered the realm of crypto tomorrow. Things change all the time. And so the learning process never stops. We use the metaphor, the dark four, in the crypto world. And the dark forest is this metaphor where you have to get from one side of

Starting point is 02:50:29 forest, one side of the forest to the other. And during that process, there is no trail. There is no leader. There is no path to follow. And meanwhile, it's dark and there are monsters out there that will eat you. And the cool thing about crypto people who have gotten navigated through the dark forest is everyone who's on the other side understands that everyone else has made it through the dark forest. And so there's a certain amount of camaraderie for all the people that are on the other of the dark forest. Getting through that dark forest is not easy, and that's why we've created the bankless program to help make that process easier. Some of the more specific risks is there are people out there that are incentivized to, quote unquote, pump their token so you can buy their

Starting point is 02:51:11 token. And they really want you to buy their tokens because then they can sell their token and they make money. So there's like these scam artists that want you to just buy their bags, that's a risk. Their smart contract risk, the DeFi Protocol. especially the newer ones can have exploits. Sometimes when they hook into, when one DFI protocol hooks into another DFI protocol, that interaction can go wrong. So that's a risk. There's plenty of different risks every step of the way.

Starting point is 02:51:38 And so it's a challenge that we're all taking on together. And it's something that, like Ryan said, is better when there are other people talking about it. Because the way that we protect ourselves from these risks is by talking about them. Not to mention the everyday volatility that crypto experiences. And this is a, this will mess with your psychology if you're not used to this. And even crypto veterans who are used to this, I mean from 2017 into 2018 and 2019, there was a 95% drop in the price of ether, right?

Starting point is 02:52:09 95% drop. So if you engage in some riskier activities, like maybe you took margin, you borrowed some against your crypto, you could have gotten liquidated that way during the worst of the bear market. What always happens is narrative turns sour and everyone thinks it's over. Crypto is dead. It will never resurrect. And when you're in those moments, it really feels like they might be right. Like, oh, shoot, I was wrong about crypto. And so oftentimes you can sell, you know, either, you know, you could sell during the worst possible times. You sell the bottom of a bear or maybe you sell as things go up a little bit, but you haven't fully realized the opportunity. So this volatility,

Starting point is 02:52:53 loan makes crypto just very jarring and very difficult to people. The best thing you can do, though, is look at this asset class over the span of decades and take a long-term view on your crypto assets. So don't just buy for the short term, buy it for the long-term. And David, every bankless podcast, we always say this. We always say, ETH is risky, Bitcoin is risky, is risky, you could lose what you put in. We really mean it. You could lose what you put in. If you put your funds in a DFI protocol that gets hacked, if you put your funds in a crypto wallet and you lose your private keys, you could lose what you put in. But then we say, we're headed west. This is the frontier. It's not for everyone. But we're glad you're with us

Starting point is 02:53:43 on the journey. And this is really important because people can get off on different stops according to their comfort level. You talked about those three steps, right? If you're not comfortable taking custody of your private keys, you could stop at step one, just to keep your crypto assets in a crypto bank. That's okay. Like, you're still kind of on the bankless journey. You could stop at the second stop where you take custody of your assets,

Starting point is 02:54:07 but you're not using these defy protocols. Or you can go all the way and start using these defy protocols. And there's risk and reward at various stages where you, start and get off on your bankless journey. I think one of the biggest points to make when we say, like, you could lose what you put in is, well, on the flip side of things, you will never actually lose what you put in if you maintain control. And different of those levels where first you start at crypto banks, then you start at self-custody, then you start with defy protocols. Each one is harder and harder to maintain control. But with, for example, the middle one where you take custody, it is possible to

Starting point is 02:54:46 to take custody and do it in a way where you will never lose those funds. After I lost my first set of private keys, I never lost a set of private keys again after that, right? That is a possible thing to do. So it's not like when we say you can lose what you put in. It's not like God is rolling the dice and like oops all of a sudden you lost your money. Like no, you have control over how much risk that you want to bear and you have control over whether or not you will lose that money. I'm not a coder so I don't understand solidity, which is Ethereum's coding language. And so when I put my money into a defy protocol, I'm kind of trusting that that protocol is going to work out.

Starting point is 02:55:23 And I don't have those skills to be able to vet those things. So I talk to people that do have those skills. But I do have the skills to manage my own crypto. And so I know that I will never, ever lose my own crypto, because I know how to store a private key. So there are different risk levels and different risk thresholds and also different skills that people can develop to make sure that they stay safe. you will never accidentally lose your money for something that is no fault of your own.

Starting point is 02:55:48 If you take responsibility and you take good control over your money, you will never lose your money. There's something so freeing about that sense of responsibility. You don't get that anywhere else and you don't get the upside of crypto anywhere else. But everything you said just emphasizes the importance of continuing to level up. And if you're on the bankless journey, if you're tuned into the newsletter, if you're listening to the podcast, watching the videos, then you're doing that consistently, you are leveling up on a weekly basis.

Starting point is 02:56:17 You know how I know that? It's because, David, you and I are leveling up on a weekly basis. As we do these podcasts, as we write material, as we absorb material from the crypto community, we're leveling up alongside of you. And the crypto community writ large is leveling up together. So we're all getting better. You know, someone who's been on the journey for longer,

Starting point is 02:56:38 might be a veteran, might know a few more things, but it's still almost a toddler in terms of their learning because this space has so far to go. We're all just kids trying to figure this out on our own. But you do want to make sure that you are leveling up on a weekly basis. Create a plan. It's almost like getting fit, doing exercise, right? Like, you have to be disciplined. There might be sometimes you might not want to do it a certain week or prices have got you down or something else.

Starting point is 02:57:06 But you have to have the fortitude and the willpower to push through it. and continue to level up as you go. Yeah, like we've been saying, this is a multi-decade's opportunity. And so just leveling up a little bit every single day can give you so much informational advantage. And so many people are trying to learn about crypto right now where, and Ryan, I know you've used this metaphor before

Starting point is 02:57:30 where this is like learning to code HTML back in the early internet. Like some of these very early basic preliminary skills, if you can learn them earlier than your friends, earlier than your families and earlier than your cohort, these skills and knowledge will pay dividends down the line. So not only is it worth it to get your money into crypto earlier rather than later, it's also worth it to get your brain into crypto earlier rather than later. That's it, guys. We took you through Defi. This is hopefully a canonical episode to take you through why crypto is important, what it is, why the time is now, and how to actually start on the bankless journey.

Starting point is 02:58:09 so we hope you enjoyed it. A few action items. We like to end our podcast with action items. Get to step one. If you're on zero, get to step one. Open an account on a crypto exchange and buy some crypto money. The second action item, start going through the bankless guide. David mentioned it early.

Starting point is 02:58:27 There'll be a link to what we call the going bankless guide in the show notes. Click on that. Start absorbing the material. And then make the commitment. Number three, make the commitment to level up weekly. could include subscribing to the podcast, to the newsletter, to the YouTube channel. We've got lots of resources for you there. David, you think we accomplished it, man?

Starting point is 02:58:48 Did we set? Did we accomplish the mission of explaining this in one podcast episode? Yeah, we definitely took a little bit more time than our first podcast, but we definitely packed in way more information. So I think a job well done, Ryan. All right. Well, the other way you can absorb some of this material is go through the first nine episodes that we ever published on Bankless.

Starting point is 02:59:09 We can check it out that way. Risks and disclaimers, of course. ETH is risky. Bitcoin is risky. Crypto is risky. Defi is risky. You could lose what you put in. But we are headed west.

Starting point is 02:59:20 This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - 55 - Welcome To Bankless | 2021 Edition

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