Bankless - 69 - Asking the Questions: BTC & ETH | Preston Pysh

Episode Date: June 14, 2021

Bitcoiner Preston Pysh joins the Bankless Podcast to discuss Bitcoin and Ethereum and prove that there are high level conversations to be had between the two communities. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge  🎧 Get this Episode's Debrief: https://shows.banklesshq.com/p/exclusive-debrief-asking-the-questions  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🦊 METAMASK | DEFI PASSPORT https://bankless.cc/metamask  🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap  🔀 KWENTA | EXCHANGE SYNTHETIC ASSETS https://bankless.cc/kwenta  ------ Topics Covered: 0:00 Intro 5:50 Preston Pysh 8:17 Macro Value Investing 16:32 Moving to Bitcoin 21:22 The Last Free Market 26:13 Decentralized & P2P 29:32 Misconceptions 37:05 DeFi and Execution Risk 40:55 Ethereum Concerns 45:00 ETH’s Price Action 49:20 Protocol Consensus 53:54 Nodes 1:00:55 Work Vs. Stake 1:10:30 Clean Energy & Halvings 1:19:00 Issuance & EIP-1559 1:28:45 Currency and Blockspace 1:34:43 Risk-on vs Risk-off 1:38:24 Decentralized Finance 1:52:30 Preston Pitches ETH 1:56:06 David & Ryan Pitch BTC 2:00:40 On the Same Team 2:04:46 Closing & Disclaimers ------ Resources: Preston on Twitter: https://twitter.com/PrestonPysh?s=20  The Investor’s Podcast Network: https://www.theinvestorspodcast.com/  Bitcoin Fundamentals: https://www.theinvestorspodcast.com/bitcoin-fundamentals/  Bitcoin & Bonds with Greg Foss: https://www.theinvestorspodcast.com/bitcoin-fundamentals/bitcoin-and-bonds-greg-foss/  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan, John Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, this is the episode. Ethereums and Bitcoiners have an adult conversation. That's the goal. What do you think? Did we achieve it?

Yeah, Preston Pish is a bitconer. he often finds himself very much on the opposite side of the argument, very much in the Twitter sphere. It's very much emblematic of like the Bitcoin versus Ethereum fights that you see on Twitter. And I think this episode does a very good job is when you get in front of these people and you look at them face to face and you're in the same room of them, those Twitter fights do not represent reality at all. This was a fantastic conversation with Preston Pish, who is a very informed investor, both in the legacy world and also now highly focused in on Bitcoin. And he's also a content producer. And so that's all.

always a fantastic time to get another content producer on the podcast. It makes podcasting very easy. Yeah, I always find with these conversations, David, that's like we agree on 90% of things, right? It's like we started there with all of the things that we agree with. We talked about fiat and late stage credit cycles. We talked about money printing. We talked about the value of self-sovereign money and decentralization. And then we talked about some of the things we actually disagree on. So that other 10%, right? So some of these famous debates, proof of work versus proof of stake, what were Preston's thoughts on proof of work and our thoughts on proof of stake?

We talked about monetary policy because we can't not talk about monetary policy. We got into a really interesting discussion because Preston values scarcity to the end degree. He thinks that is why number go up for Bitcoin. Well, guess what? There's some pretty extreme scarcity properties coming to Ethereum in the next 12 months. So we had a good discussion on that. I think listeners will have to, I guess, come to their own conclusion on this. There's a certain element I feel, David, and you and I have talked about this,

that sometimes whether you're attracted to Bitcoin or Ethereum is more up to, like, personality, more up to disposition. And Preston is kind of like reminded me of the conversation most with Lynn Alden, where she was just like, yeah, what you're saying could be true, and I can understand what you're saying, but it's still too early. to me. I want to see all the execution risk boiled out of this thing before I'm willing to give it another look, but I will give it another look. So I almost, David, want to bring back Preston in 12 months or so, or 18 months when Ethereum has shipped even more and some of these major

changes go through and talk to them then and get his opinion from that perspective. But all in all, really interesting discussion. I hope this is the discussion that listeners wanted. Again, that conversation, open-minded conversation between two groups that are more aligned than they seem, but often appear so tribal on social media. And maybe over the long term, like as Ethereum calcifies and as Bitcoin just chugs along, hopefully we come together as a community rather than splitting further apart. I think, you know, if Preston, you know, comes and the plan, for him to come and look at Ethereum in 12 months time and see all that execution risk in the rearview mirror. And according to what he said, that he would be much more open to an Ethereum

with minimized execution risk. And that's more or less what Lynn Alden said. And so maybe the time for a decent amount of risk-averse cohort of people to come to Ethereum is just not now. Now is the time for people who are willing to take on that execution risk. And that might be you as a listener of this podcast. Like maybe you're cool with execution risk. Preston is not. And he explains his rationale and he explains his reasoning. And that's kind of like the core fundamental difference between a lot of like the Bitcoin only types of people. Absolutely, guys. I think you are really going to enjoy this. Before we get to the podcast, we want to thank the sponsors that made this episode possible. Synthetics is Ethereum's decentralized derivatives liquidity protocol. What does that mean?

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to lock that interest rate in permanently. One of Avey's V2 features is the to swap collateral without having to withdraw your assets. Trade them on uniswap and then deposit them back into AVE. AVE does all of this for you all in one seamless transaction. So you don't have to repay loans in order to change the collateral you have backing them. Check out the power of AVE at AVE.com. That's AAVE.com. All right, bankless nation, we are super excited about this next conversation with Preston Pish. Preston is an investor with a strong understanding. of macro, but maybe most relevant to today's conversation. He's a bitcoiner that we feel like we can have a great conversation with. And that's what you're here for is a fantastic conversation

between Ethereum's and Bitcoiners. Preston co-founded the Investor Podcast Network, number one ranked on iTunes. We study billionaires is what it's called. He also hosts the Bitcoin Fundamentals podcast, just an awesome podcast. I enjoy quite a bit. He is one of the leading Bitcoin advocates and has a very firm footing in the legacy finance world as well. Preston, welcome to bankless. It's great to have you. Guys, great to be here. Looking forward to this. Looking forward to learning. Perfect. I'm so glad you said this because I think this is what listeners really want to hear, Preston, is an adult conversation between Ethereum and Bitcoiners where they listen to each other. They're not just rattling off talking points on Twitter.

they're trying to understand each other, where maybe they share values, where maybe the points of difference are, and I hope that we're able to have that today. Yeah, absolutely. You know, where I think it would be great to start, actually, for bankless listeners who haven't heard sort of your story a little bit, is kind of how you discovered Bitcoin. And when you discovered it, what about Bitcoin resonated with you? So, I mean, I was a lot of people that listen to my show know my background as far as being a Warren Buffett person. And they've heard the journey because we've been doing it for a very long time, doing the show for a long time.

And, you know, it got really strange where, you know, I'm doing these discount cash flow models and really kind of just a stock investor purely, really nothing else. The bond market never really interested me as far as being able to. to outperform equities. And we were studying Ray Dalio in particular, and we were studying Ray Dalio's long-term debt cycle. So good. And we were studying just how he invest, which is really kind of very unique and way different than the way that Warren Buffett invest. And so that was for me really kind of a fascinating piece to it because here you have a guy

who's pretty much a stock. Buffett is pretty much a stock investor. If you plowed into like GEICO and things like that, he was doing a lot of fixed income stuff. It's very strategic times in your typical like seven to eight year credit cycles. But outside of that, I mean, it was really straightforward. Didn't really mess around with commodities, definitely didn't really mess around with currencies other than just hedging currency risk

from an operational standpoint within its businesses. And so I start studying Ray Dalio and here's a guy who, 15% of his portfolio around that amount is purely dedicated to currencies and commodities. You have pretty much the rest of his portfolio that's making up this mix between equities and bonds. And not only that, but he's levering a bond position. And just like the whole portfolio construction was just so different than Buffett. And then he starts explaining in some of his material, he starts talking about these long-term debt cycles.

And I'm like, holy hell, what is this? This is so different. Yeah, I got to understand this. And his performance was exemplary. Yeah. You know, he blew up in, I think it was like the early 80s, but ever since that point, his performance was just like, you know, similar to Buffett's close to 20% kind of numbers.

I know in the 2008-2009 crash, the market was down 60% in Ray. And in one of his, you know, more premier funds, he was up positive like 9% for the year. And so I'm looking at this and I'm analyzing it. I'm saying there's something here I need that I'm totally missing from a macro standpoint. And you come out of like the value investing, hardcore Buffett style of investing. And the mindset is just ignore macro. It's not even worth your time.

It's complex. Can't understand it. So just ignore it. And just focus on the micro and do your valuations and try to find the highest IRA. for internal rate or return relative to, you know, whatever stocks you're kind of looking at. So long story short, I'm studying Dahlia and he has gold in his portfolio and I'm saying, you know, anybody in the Buffett community is like saying gold is just a useless rock. It's a useless rock that doesn't kick off any cash flows and say, why in the hell would you own it?

Well, because Buffett's rationale is basically like if you want an inflation hedge, Preston, go buy stocks. Right? Because that's an adequate inflation head. So what are you doing mess around with gold? Yeah. And he even gets into, there's some really neat shareholders letters from like the early 80s where he, because you know, you go back into that time and you look at what inflation was doing back then. It was, you know, 16% on the 10 year treasury and things like that in 1981. And so he has some really interesting comments about inflation, particularly with equities and how you want to own a company that has a lot of intangible assets and not tangible assets. That's because of the turnover and the cycle rate and you're buying things that are losing value when you're holding a lot of inventory and just a really kind of a fascinating discussion. So he addresses it and it gets to your point. You know, own that instead of a pet rock that's not doing anything productive. So Dahlio changed the way I see that in a dramatic way, like very dramatic. And this is like all through our show, right?

So like we're doing the show and like people can hear how like like our opinion. The thesis is changing. Our thesis is changing. Our minds are warping. And it was like learning in a very public kind of way. And so in short, I mean the reason Ray has gold in the portfolio, like the basic thesis is really kind of for currency collapse or for like severe currency debasement. It protects against that. It's kind of the ying and the yang to the.

currencies and that's why commodities and currencies kind of have this inverse relationship inside of his all-weather portfolio. And that's why they're equally weighted. I want to say it's about seven and a half percent for each one of them because his opinion is as one's doing performing well, the other would be not performing well. And then he's trying to find where would I want to own, when would I want to have the heavyweighted currencies and then which currencies would I want to be heavyweighted in comparison to that to balance it out. So, long story short, I'm sorry to keep kind of going on about it, but in short,

gold made a lot of sense for currency to basement in the portfolio. And then, you know, I'm a millennial, barely a millennial. Some might argue I'm not, but I think I'm right there, maybe the last year of a millennial. And, you know, gold made sense to me at that point. And naturally, Bitcoin made sense as well. And so this is in the 2015 time. frame. We did a show about Bitcoin back probably first or second quarter of 2015. It's kind of funny to listen to because we're like, what the hell is this? Who is the person that, like, how in the world can something that, you know, doesn't have a known founder possibly like set on a global stage and people take it seriously? You guys were just figuring it out on the show

as you went on. We were figuring out on the show, but you know it was interesting is even back then And at the end of the show, I tell people I took a position in Bitcoin. And the reason why I bought it back then is because for me, it had such a massive asymmetric upside because of how sick and broke the traditional markets are, specifically the fixed income market in traditional markets. You know, I was of the opinion back in 2008, 2009 that nothing was fixed from that. So as we went into the, because, you know, I was, I was invested in the market during that period of time. And everything that they did from a central banking standpoint after 2008, 2009, for me, did not make any sense whatsoever.

I was like, well, this is a short-term fix, right? All the QE. And then they did more. And then they did Operation Twist. And now they're buying a longer end of the bond curve. And now it's normal. It's not even. That's right.

No one even questions it. Yeah. So I'm looking at this and saying. okay, so what's the end game here? Like, there's no way we can keep doing this without there being some type of repercussion. And so come 2015, gold was starting to make sense. I see Bitcoin. I'm saying, I'm going to own a little bit of this because if this is, if this would play out, because I don't see the end state, this could become extremely valuable stuff. And the settlement can take, no, back then it was only, you know, every 10 minutes you could settle.

So that was that was a major challenge and kind of a setback at that point in time. own it because of the settlement time and there was a scaling concern back at that period of time when we covered it and a lot's changed since. But yeah, that's what got me in. Okay, so I think I see sort of your path here, right? So coming from Buffett, right? And then you absorb that world and your long-term time horizon and all of the things like he preaches and says. And then Dahlio is all about the credit cycles. And, you know, what at the 70 to 90-year sort of cycles. And within those cycles, somebody like Warren Buffett can be completely right and thrive. But when those cycles change, and Dahlio argues that we're in the late stages of a Fiat credit cycle,

when those cycles change, the Buffets of the world can be really, really wrong. And you have to be ready for those stages. So you saw that, and I get that. What's interesting to me, Preston, and you've probably been studying Dahlio for longer than I have, though, is Dahlio hasn't yet fully made the connection to Bitcoin. And maybe that is the millennial in you coming out because he sees what's going on, right? With, you know, he's like, you should hold the gold as a result. You know, non-sovereign wealth stores are your friend, commodities, gold, these sorts of things.

But he hasn't yet connected that to the digital. And I wonder at some level whether that's just a product of when he was born. Like the generation, you didn't grow up with computers in the digital being a fundamental part of his life. So maybe it's just harder for him to make the connection. I know he was at the Coin desk conference. He's kind of coming around a little bit, so he's maybe getting close. And if anybody can change their mind on something, it's someone like Dalia, who's very rigorous, very analytical. But that seems to be the additional step that you took is just jumped into the digital.

And I'm curious if you think that's kind of just a product of the time period in which you grew up. I think the thing that's really kind of held Ray back is he, it appears through some of his writings that he has been very concerned about government shutting it down and just if it really did start to run that somebody was going to come in and be able to stop it. I think, like you said, he's down there at the conferences talking about it. He recently made an announcement on CNBC that he doesn't see the dollar continuing to be the global reserve asset, just like Stan Drucken Miller. The other thing that he said recently that I think is what I feel like I've been screaming about for a while, which is he made the comment to the tune of like, I'd rather have Bitcoin than have bonds. Yeah. And people on CNBC were kind of scratching the head like, hmm, everyone keeps talking about Bitcoin versus gold, but no one's talking about coins versus bond. What he's getting at is if Bitcoin starts to become the new store of value. you globally, what does that do for debt in general? And I don't think too many people can have

connected these dots as to what it means for the impairment of debt because your interest rates. And boy, I'll tell you, and I've been saying this on a couple different shows, what if these stable coin interest rates that you can get in defy that you can get on centralized exchanges. I know when you go peer to peer on like a USDC token, like it's like 20%. Right. What if, what if, this is the big what if that I'm trying to propose and put out there to people, what if that is the real risk free rate, right? What if what if the cost of capital is double digits? We won't even say 20%. Let's just say it's 10%. We could say it's 5%. Because when you look at asset prices, specifically like equities in real estate or whatever, it all comes down to interest

rates. And if they're priced, and I'll be generous and just say it's 2% or 3% today is where the equity market's priced. But let's just say that the real risk-free rate is 10%. Like the amount that they have to come down, the equity prices have to come down. If those stable coin interest rates are the real new risk-free rate, I mean, you're watching equity markets sell off by like 80% from where they're at right now in Bitcoin terms. In that new emerging global currency that is basically taking over from fiat currencies as we know it. And so that for me is the big like really mind-blowing scenario at play globally that I just don't think. anybody's talking about. I don't think anybody looks at that as being like real risk-free rates,

but think about it. Like, who's stepping in and saving anybody with these rates? Like, nobody's. Yeah, and that's what's interesting about crypto, right? So another headline on CNBC is always talks about the volatility of crypto. But sometimes I wonder if, like, crypto is maybe the more free open market. Maybe crypto is the last free market on the planet. Everything else is just artificially suppressed or like push down and certainly interest rates are so that has an effect on every single other asset class and maybe like our world is the real world it's just like it back do I have to go back to the matrix meme like like we're in the real world CNBC is in the fake synthetic world and like we're seeing all of the raw volatility and craziness that is a free and open

market I mean just think and that's totally how I feel But just think how insane it is for people to think that the 10-year treasury is not manipulated. They're printing a bunch of money. They're going straight into the bond market. They're buying the bonds and they're shoving that cash into the system and they're clawing those bonds off the market, which is either pegging the yields at whatever percent or lower. And so now they're talking about yield curve control. It looks like the 10-year treasury is kind of cooled off.

But if that thing got up near 2%, they were going to step in. They were going to do yield curve control, which means we'll print whatever amount of money that's needed to ensure the yield doesn't go higher than 2%. And we're just going to keep shoving it into the system and clawing those bonds out of the market. Right. That's manipulated. That's not the cost of capital is not real at that point. It's just imaginary land. So I'm glad we're kind of starting this with the things that we all agree on, right? Like the reasons we're in crypto.

And I think we hit on two just then as we went through kind of your background and introduction, your story. One is I think all of us agree that we are in this late stage fiat cycle. Fiat monies are probably doomed. And by doomed, I mean, I don't think it's the end of fiat, but there's going to have to be a jubilee, a reset, a money printing event. And I think we also both agree back to your comment that like money printing does suck because a small group of bankers should not have the ability to decide who gets freshly printed money and when they could print it.

I mean, that is an unfair, we use the term often on bankless, credibly neutral. This is the antithesis of credible neutrality, right? A small group of individuals have controls over the buttons to print their money, and they can print it however they want. over the last 10, 12, 15 years, it's gone primarily to the banking class and the wealthy. Now it's maybe it's shifting to labor, but that's probably not a good system to base our monetary system on. So those two things we agree. I want to get to a third that I think we agree on. And that is this concept of self-sovereign money that individuals rather than faceless governments and banks

should have more power in our financial system. And for self-sovereign money to happen, we have to have decentralization. Decentralization is necessary for anti-fragility. Is that something that you deeply believe as well, Preston? Absolutely. Yeah. And then I'll also follow up with some sort of belief

that markets and monies should be out of the hands of top-down control and more of a bottom-up emergent phenomenon. on. I think, Preston, you might also agree with that statement, too. Yeah, I think for anybody who believes in freedom and free markets and the power being at the lowest level within the individual, like what you would read in the Constitution of the United States, I don't know how anybody could see it any other way. Because what it does is it forces upon elected officials to make decisions reasonably. They're not just going to go to war with another nation state, when there's extreme repercussions for the cost, the real cost that it takes to do

something like that. And so when money is free, or I should say currency is free, that whole incentive structure and that decision making that's being made at the highest levels gets totally warped, almost like, you know, somebody who's on a drug held their brain and their rewards. and penalties of their decision-making get warped. How important to you, Preston, I'm curious, back on this self-sovereign topic, is the peer-to-peer nature of crypto or something like Bitcoin, right? Really high.

Okay, okay, so let's talk about that, because I feel like there are two elements of decentralization in something, in a system like Bitcoin. One is like hands-off decentralized issuance, right? you're like, no one has the ability to print. The algorithm controls the printing of new Bitcoin. But the second piece of decentralization is anybody can transfer Bitcoin peer-to-peer from one person to the other.

And it strikes me that some in the Bitcoin community value one and not the other. Some value both. Some value one more highly than the other. Of course, we had the Bitcoin cash work. We all know, like, about that. But the reason I'm curious, too, is, because some who only value the issuance side of things might say things like, oh, it would be really great if we had like a paper, like a government fiat that was

Bitcoin backed, right? Like a paper sort of fiat that, but like you've removed the ability to have the peer-to-peer sort of nature, almost like a Bitcoin standard, but we're not necessarily using the Bitcoin network. How did those two line up to you? Is the peer-to-peer nature of Bitcoin as important as the hands-off the issuance policy side? You know, for me, this was just an argument that was much more of a debate back in like the 2017-2016 time frame. I mean, really anything before the Bitcoin Cash Fork, it was a big debate within the community. But I would say now, I don't really see within like,

you know, hardcore Bitcoiner community, I don't see that really kind of being much of a concern because at the base layer, you got your sound money, your issuance hasn't been changed, the security hasn't been compromised by like anybody can run a full node. It's super easy to do. But yet you're still being able to step into layer two with the Lightning Network and conduct transactions instantaneously at sizes that make sense for the amount of fees. that you're being charged. So like if I want to send somebody 500 bucks on lightning, it's it's not too hard to use those rails to do it.

So, you know, I don't really see too much of an issue in the space with respect to that, you know, peace right now. So Preston, I think that's our base, right? So like there's a lot here that we agree on, right? And the last one being sort of self-sovereign money, I might add digital because neither David or myself or anybody who listens to bankless is really excited about non-sovereign physical assets like gold, right? I mean, because we do skew born millennial. We think the world is going digital. For sure. Don't bet against that. I mean, I just don't know how anybody in this day and age

could think that we're going to go back to trading rocks and paper currencies on top of it. It doesn't make sense to me either. So let's talk maybe We're going to get to some topics Maybe that are kind of the crux of Disagreements Between the Bitcoin and Ethereum space And we have a few

I'm going to just like throw them out here As a table of contents We won't get on them now But I think one of the things We probably want to talk about Preston is Proof of Work versus Proof of Steak And the tradeoffs of those two things Another thing that seems important

Is monetary policy So fix supply of Bitcoin versus the security tradeoffs that Ethereum might make. The third is, Bitcoiners often don't think of ETH as a store of value, where Ethereums do and increasingly do think of ETH as a store of value monetary asset, a money, as we might say. We should talk about that. Another thing I think Bitcoiners and Ethereum can disagree about is the importance of decentralization.

And when we say decentralization, what aspects of decentralization? like most matter. And maybe that's less a disagreement and more sort of a conversation or like a mutual back and forth learning. And then the last piece I'd like your thoughts on is I guess the the holiness of Bitcoin, right? So there is this idea that hey, Bitcoin was first and when Bitcoin was made, it was made well. And there's no need to tinker it with it, right? That means, like, hey, I'm here to fix Bitcoin. Like, nobody fixes Bitcoin. It was made and you shouldn't tinker with it.

And there's like an offshoot of that, which breeds, I think, possibly some maximalism. At least we want to have the discussion of maximalism, what that means to you. So that's kind of a table of contents grab bag for the episode. Is there anything else on your mind you think we should discuss? No, I love that list. Well, before we get into the first one, which is like proof of work versus proof of mistake. I wonder if we could clear up some misconceptions for a minute. Do you think that there are any misconceptions that Ethereum's that people like looking into Bitcoin might have about

bitcoins that you should clear up? Like one thing is, every bitcoiner I've met in real life has been like awesome, like really cool, really fun. I mean, David just, I didn't go to Miami, but David just came back. He's like, I had a blast. These people are great. Yeah. No, Bitcoiners are lovely people. They're very, very nice in real life. On Twitter, you can kind of find some nasty ones. But I've never met a mean Bitcoiner in real life. I think it's more of a function of just, like, when you're talking to somebody face-to-face,

you have this real, like, human interaction. I think when you're on Twitter, I mean, I'm just as guilty as the next person. But it's so easy to, like, fire a shot to somebody because it's not like it's virtual. You don't even see a facial reaction, right? And I think it brings out the animal spirits and people. And that it's just so easy to fire these shots. I mean, there was one that I did today that I wasn't, you know, if I, if I'm sure if I was sitting next to the person, I would have been way nicer than just, you're just, I'm sure you're an academic from Ivy League school or something like I said something like that. And of course, it wasn't like the nicest thing.

But I think it's more of a function of that dynamic than anything else. I think most people are well intended. But as a human being, there's gaps in everybody's thinking, I don't care who you are. Like, you're a product of your past and your interactions and the people that you've associated with in your preconceived notions. And that's kind of led you to the place where you sit today. So that's where I sit. That's where you guys sit. And there's going to be deltas in the way that we see things.

And so, yeah. Are there any other misconceptions? Like, I think a lot of the Therians hear some rhetoric from Bitcoin are saying, ETH is a scam, like flat out scam. Do you think ETH is a scam? Let me put it this way. I think that everybody who's working, especially the engineers that are working on this are well intended. I just think that I think there's personally, I think there's a lot of risk, technical risk moving forward with, and not just Ethereum, but really kind of a lot of these other blockchains and store of value, smart chains. that are out there. And I'm saying that relative to how I view Bitcoin from a technical standpoint in the maturation of where it's at right now.

And you got to remember, when I'm looking at all of this, I'm looking at it primarily with a value investing kind of lens of I'm going to buy this thing that I think is going up in value. And what do I think the value, what do I think that the potential, appreciation and value is relative to all my opportunity costs and then what are the risks associated with all those forms of investment, right? So I'm looking at it from that kind of lens. So when I say, you know, I think your question was, do I think it's a scam? I don't think it's a scam. I think what you guys are trying to do is create a virtual machine that's that anybody can program, right?

I get what you guys are trying to do. I'm concerned whether not, how do I say this, but in a nice way. You don't have to be that nice. We can still be friends. But I think it does a huge disservice to say, I think people are scamming.

I think they're doing this. I think people are well intended. But I'm concerned with the longevity of this. being able to be pulled off at scale over a long duration of time. And so, like, and that's another thing that I think is important for people to understand. My thinking is, like, I'm looking 10 years out. I'm looking 15 years out. Like, what's going to stand the test of time?

And so, like, whenever I look at ETH and I look at where it's at today as a proof of work, you know, blockchain and it trying to migrate to proof of stake and, you know, then, doing the sharding and everything else. Like it is a enormous technical feat that I think is ahead of you. And you guys understand the engineering of it way more than me because I just haven't invested the time because I see all of this as being risk relative to this other thing that I think is going to perform very well, especially when you start talking about thousands of percent of return in such a short period of time.

for me, it's just not worth my time to go and invest my time into trying to understand all the nuances when I think there's still so much risk to be resolved there. So I don't know if that kind of answers your question. No, that's really great. And you started when you were talking about when you found Bitcoin, you saw that it mimics the properties of gold, but with the asymmetric returns, right? And so maybe trying to put myself into your shoes, you are saying, why would I go and risk all of this asymmetric returns that I think is coming with something that has this like technical upgrade path. So pressing my question to you is, um, most things that aren't Bitcoin have some sort of like upgrade path, like safer light coin, doge coin, all of these like early

Bitcoin forks, most things have a technical upgrade path. And so like, do you think that anything in the crypto space that has an upgrade path ahead of it is just kind of disqualified? from what interests you as an investment for you personally? No, but from an investing standpoint, I would rather see like all the fighters in the ring and watch them kind of devour themselves until it looks like a winner starting to emerge. And I know that sounds terrible because I think,

I think a lot of people in the space really are trying to change the world, just the space in general. They're trying to, get away from the JP Morgan's and they're trying to allow people to go peer to peer. And I am all about it. Like, all about it. You're all about bankless. I'm all about bankless. I'm all about people taking the power back from the contillionaire system that we currently are experiencing. Because I think a lot of the social unrest we see in the world is a direct result of the monetary policy that

the inflationary monetary policy that's been applied for eight years. I think, think like the polarization of politics is a direct result of this, these policies. And I don't think very many people are connecting the pieces together. So when I look at that, because, you know, let's say we fast forward five to 10 years into the future. And all of this is really starting to take root. You're going to have countries that are still trying to prevent people from going peer to peer in lending and borrowing and decentralized finance. And so do I want decentralized finance to be successful? Hell yeah, I do.

I think that at the end of the day, and this is really interesting, when you look at risk-free rates today, they're completely managed by governments. And for people in finance, they would find it laughable to think that a risk-free rate could actually be generated in a peer-to-peer market. But I'm of the opinion that in the future, like five to ten years from now, that your risk-free rate might actually be rates that are generated in the peer-to-peer market, specifically because you can actually see the escrow and you can actually see the addresses between the two parties taking place. And so when I think about centralized finance and like companies, you know, C-Fi today, I would argue that they're doing these baskets. of balance sheet management between tokens and things, I see that as more risk than peer-to-peer lending.

Wow, I actually didn't expect you to say that, but we'll put that in the mutual things we agree about, like, Defi, hell yeah, is what I heard you say. Like, I mean, some Bitcoiners don't like Defi, but you're not one of them. I think that's probably a strong statement. Maybe I'm out to lunch here, but I think that, Bitcoiners want Defi, but I think they want it on a protocol that is truly decentralized,

that no government entity could come in and disrupt it, shut it down, whatever, right? That's what they want. And they want it to be in some type of technical solution that has a lot of maturation is what I would imagine. But maybe I'm speaking for Preston and not necessarily the Bitcoin community. But that's how I personally see it. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot.

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unigrants.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for bankless, and you can do the same for your project. Thank you, Uniswap, for sponsoring bankless. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries worldwide, And on Gemini, there are markets for over 30 various different crypto assets, including many of the hot defy tokens. And it's one of the few exchanges that has liquid dye markets.

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and if you trade more than $100 within the first 30 days after sign up, you'll be gifted a free $15 Bitcoin bonus. Check them out at Gemini.com slash go. go bankless. Preston, you said that you would really kind of just rather just wait for a winner to emerge, right, and wait for really things to mature before you really get into what might be an investment outside of Bitcoin. And that was really reminiscent to me about kind of Lynn Alden's approach towards Ethereum as well.

She was like, well, it's a young technology, you know, hasn't really proved itself. But I would say that Ethereum has proved itself from everything below Ethereum, onwards, right? Like, Ethereum is six years old. And a lot of Bitcoiners gave very similar criticisms to Ethereum in its early days when Ethereum was just one or two years old or even the same criticisms before he was even born, like technical risk, it can never upgrade, the roadmap isn't achievable. And granted, the biggest things about Ethereum's roadmap are still ahead of it, you know, sharding, proof of sake, EIP-1559. But at the same time, Ethereum has attracted basically all of the crypto economic developers that really want to playground to do research and

development and then implement, you know, measured upgrades that we think are good for the protocol. And the Ethereum network has actually gone through a large number of successful hard forks and successful protocol upgrades. And so we have this, you know, growing track record of successful protocol upgrades. Meanwhile, we have this immense amount of network effects in defy with peer to peer lending and borrowing and lending applications, you know, options applications, all these other financial applications. And we are just not seeing that same sort of ecosystem show up on any other crypto network, nor are we seeing any developers show up on any other crypto network. And so my question to you is when you are looking for some winner to emerge out of this, like,

you know, battle to the death, why hasn't Ethereum like tick that box yet for you? Like, what else are you looking for? Really, the, the thing. that I have concern with on Ethereum is just this migration from the proof of work over to proof of stake. And then also 64 blockchain, sharding that's then going to be, you know, I think you guys are calling it 1.5, you know, after the porting portion of it takes place. then on beyond that, I would just say I have concerns about what happens from a centralization standpoint in five or 10 years from now when you're under a proof of stake system because, and I'm sure you guys have heard all these arguments, right, but I'm just going to kind of reiterate them because, you know, I buy into this. When you have a proof of stake system, I think the exchanges are going to become pretty. darn powerful for providing a service of staking the coins and then what does that mean for validators. Now, my understanding is that under ETH II, you guys are going to then have this mechanism that

the validators are getting randomly swapped between those 64 chains, which might provide a really unique solution to mitigate some of that concern as far as the centralization of the validators. but going back to my investing routes. So anytime I'm analyzing a company and they're saying our free cash flows might look like this in the future or they might grow at this rate at a 10% compounder for the next five years, I immediately put that more into the speculative bin than the investing bin because it's not something that's actually happening or present today. And so that's, although I agree with you that EF has kind of proved itself as the biggest, you know, fighter in the space today, it's under all these technical circumstances that are all about to change, right? And so that transition and that pivot for me is very concerning from an investor standpoint. Now, I'll tell you this, something that I find really interesting. So obviously, I'm looking at the price. And I can see the performance over the last three months. And ETH has done very well relative to Bitcoin. And so I obviously asked myself, what's driving that?

Why is that price going up? And I would be, and this is more of a question to you guys, do you think that the staking that took place back in December, I think it was in beginning of December, that people were able to start staking their their eath into the beacon chain. Do you think that that staking basically was almost like a halving event as far as scarcity of coins that were then sucked out of the market, which then made ETH more scarce to drive up the price? I don't think so because the people that are staking, kind of there's this game with staking is like kind of no one wants to be first, right? Like no one wants to be first through the door. So there were some people, I think,

Vitalik was probably put some of his ETH through. I think the EF made of like deposit a little bit of ETH just to kind of signal confidence. And then some very early OGs put their ETH first as well. Like the people that have been following the space and been waiting for staking. And this has been verified decently well on chain is that a decent supply of the ETH that went into the deposit contract was very, very dormant ETH. Like some of the ETH that went into the deposit contract hadn't moved since the actual ICO inception date, right? It had been dormant for six years. And at the time of speaking, we actually have 4.5% of all ETH in the deposit contract, whereas there's 11% of ETH inside of crypto exchanges. And with ETH inside of the deposit contract, that's like the beta

for staking. That's not even like, you know, full production of staking where everyone can go in and out and as they see fit, right? This is, are you committed to Ethereum? Because you don't know when we're actually going to merge. And so, like, you're going to put your eth in here, and then you'll get it back whenever we merge, right? At some point when we merge, the barrier to staking gets really, really low. Like consumer-level hardware, even with innovations such as staking pools,

decentralized staking pools, like Rocket Pool with Lido Finance, the goal of staking is to allow everyone to stake in. of their own homes. And it's very much an anti-centralization vector, whereas the staking on exchanges is always a concern. And the way that the Ethereum community has answered for that concern is by making it trivially easy to stake at home with even like only portions of a stake, right? You need to informally in the code, you need to stake 32-Eath, but if you don't have 32-Eath, you can participate in a staking pool, which is its own defy app, right? And so the ethos of Ethereum is to really offer optionality in staking. Right now, the OGs went first, and ETH was never on

the secondary market to begin with. I think really where that price rise came from was some level of the market putting confidence in that staking will actually happen, whereas, you know, if you ask people in 2017, 2018, 2019, some people started to believe that, oh yeah, proof of sake, will never actually get here. The launch of the deposit contract, plus the depositing of what is now five and a half million ETH into the deposit contract, I think was a signal of confidence. Along with, we had parallel signals of confidence of EIP-1559, getting approved and with a date for inclusion, which is sometime at the end of July. I think the big ETH run-up in price was some sort of skepticism narrative violation. That's my take as to why the ETH price ran

like it, how it did. Say that again, skepticism. Narrative violation. There was a very much an anti-Eth like proof of sake will never ship eIP will 51559 will never ship and now that's that skepticism has kind of that that narrative of the skepticism has kind of been violated okay yeah so um is i want to talk about the 1559 thing with you guys sure so uh you know my understanding is that the 1559 is going to happen in in july that's been approved did you say that it's been approved yeah by like rough consensus so everyone kind of gave the thumbs up and no one really gave the thumbs down. So that's how we have consensus in Ethereum. And how was, and I truly don't know. So when you guys say that you have consensus, I know with Bitcoin, so like we're going through

the tap route, you know, upgrade. And the miners are the first ones. And then they all basically signaled with the blocks that they're mining that they support it. And now it's going to keep going through. So for you guys, how are you guys like, how was the 1559 approved? Because I have no idea. Yeah. There's this EIP process. And it's, very, very rough. And it's purposefully informal in the sense that, like, there's no vote, there's no vote counting because as a system, we know that if we make a formalized governance process, that's an attack factor, right? Like, if you lay out the rules, then you tell the attacker what the rules are. And you don't want to inform what an attacker, or would be attacker,

you don't want to tell them what the rules are. You want it to be rough. And so, you know, EIPs get proposed. It goes through an all-devs call, basically a Zoom call. And so, you know, Zoom call with all the core devs who work on these different client teams. And loosely, all the client teams are the people that are ultimately responsible of putting that improvement protocol into code and then actually updating the clients. And the clients all organize and coordinate with each other. And then there's some sort of like kind of community consensus process, right? There was this one EIP forever ago called PraguePau and the miners really, really wanted it. But basically no one in the community wanted it.

Yet the miners had their sort of influence in the EIP process. The EIP was proposed. Then the community learned that the EIP was being discussed and like pushed back very, very heavily. And when I say the community, I'm talking about people on Reddit, people on Twitter, people just making their voices heard. People made a website, a vote no on PraguePow. And, you know, it's all about, it's much, very much like a meritocracy as to who can be in these all-core dev calls. You really, really have to show face for a long time and really prove credibility and clout and allow, just like how kind of like Bitcoiners really kind of rise to the rise to the top of Bitcoin, the Bitcoin community based on their merits and contributions. Same thing with the Ethereum core devs and the leadership. People like, you know, step up as a leader and they rise up through the merit to their contributions. And there's this rough consensus.

There's this famous Ethereum, like, video in an all core devs call where they, people asked it came time to figure out if we were going to include this EIP or not include this EIP. And there was a, you know, please signal if you have anything that you, if you, if you don't want this thing included, right? And people were really confused as to whether they had consensus or not, but people like, oh, I guess we have consensus. Let's move forward. And that's, and it was this very chaotic, like, what I like to call chaotic organization way of moving forward. And that's how we make sure that the community never gets pissed off when something gets included, and that it really just has to happen by some sort of pseudo-super majority.

But at the end of the day, your full-node operators are voting with the software. So whoever's running the full-node. Yes, correct. Yeah, different community, but similar processes, Bitcoin. Right. It's like other chains, other smart contract platforms, they have like token vote governance, right? Which, in my opinion, kind of embeds plutocracy into the system. You have the most stake.

You have the most tokens. You have the most capital. You get to say what the next upgrade is. But Ethereum's upgrade path works the same way as Bitcoin's. In that, like, ultimately, there's court dev teams. They develop the software. They push the software. In Ethereum's case, there's multiple, you know, clients you can run.

Bitcoin's case, there's one client you can run. So users, those that run the nodes actually get to choose what software they want to run. and when the fork comes out, they could choose whether to update or not. So ultimately, it's the, it's the, those who are running the nodes that, like, decide, right? That's the check and balance on power here. So my question for you guys is when you migrate over to ETH2,

and you're going to have four different types of full node, or you're going to have four different types of nodes, which node at that point, would it be the super full node, would be the only one that like let's say there's a discrepancy between the community and you have a 50-50 split. Which full node is the one that is able to basically say this is truly the software we're running. Is that the super full node or? Okay. So, so.

So, so first off, there's there's the, when you say a different kinds of nodes, there's different client teams and there's different client's softwares. And so there's literally four different clients that will produce. for different nodes that all can actually agree on the same state. But what I think you're talking about Preston News, you're talking about, there's an archive node, there's a full node, there's a prunes node, and everyone who's running a node is running a full node. There are like light clients and stateless Ethereum that's being worked on,

but when we talk about nodes, we're talking about full nodes. Now there's the difference between a full node and an archive node, and a full node is something that is roughly about 150 gigabytes. An archive node is that big one that really scares Bitcoiners. It's multiple terabytes. It's like multiple terabytes, right. And the difference between a full node and archive node is an archive node is full node plus computation. If you have a full node, you can produce an archive node with sufficient computation.

But the full node has the full state of Ethereum, the full verification of every single transaction that's ever happened. and that's the bare minimum thing that needs to be part of the network to achieve consensus. And that's the thing that's like very, very manageable as a piece of hardware and software. Yeah, full node's like 250 gigs or something like that. You can download it. I was talking to Vitalik last night. It was 150 gigabytes. That's for the state.

And then you have to the history as well. Yeah. But like an archive node is multiple terabytes. But a full node you can actually sink in like half a day. you know, 12 hours, 15 hours from a home internet connection. An archive node, that's the thing that you really can't run at home, that an individual can't run. But those who run archive nodes are doing that for like faster queries, that sort of thing to like power adapt for faster query response times. It doesn't have anything to do with actually validating the network.

My question is more oriented to the E2 than kind of what you guys. have right now. So like the super full node is that's downloading the full data and the beacon chain and every shard block and every reference. Is that going to be needed for the consensus of the code? Or can you get away with like a top level node or a single shard node? Like I guess when I'm when I'm looking at that and you're going to have these nodes that are like a single shard node, that's a one piece of the puzzle. And I'm aware of like fraud proofs and things like that as far as then. them validating these blocks as they come through. But from a forking standpoint is really kind of the essence of my question.

So if the community, let's say ETH2 goes through, whatever year we're in, and there's a discrepancy between the community as to a certain path and there's a 50-50 split in the direction, which one of those nodes are going to be the ones that are able to, say, well, you have an opinion, but this is truly what's being run here. Which one of those would be the, would it be your super full node is what I would assume? Well, you said a sharding node. So when you are validating on proof of stake, you are validating one shard. And the computation that is required to do that is just for one shard.

All 64 shards go into one single node. So an Ethereum 2 node is still a complete node of all the shard. So it's not like the shards are like accidentally like splintering off into different directions in the case of a fork. So there's still only like if you have if you're running in an ETH2 client, you're running the full Ethereum blockchain. And that again, it's really just no different from from Bitcoin. It's a full node that carries the current header of the state of Ethereum. And and the the and you can still produce an archive node from that. But it's always the full nodes that at the genesis of Ethereum, I'm not sure what the state will be.

this date is completely wiped clean because we're back onto a new, we're back onto a new blockchain, and the ETH one is now just a shard on there. But it's truly no different. It's just the full nodes from the client teams. And the design goal here, Preston, is have the ability to run that full node from a consumer laptop. That is like a necessary design requirement to keep this decentralized. I just, I guess, and it's definitely a technical roadblock for me, because I just, it's not my forte for sure. It's also not our forte. So I hear that and I'm just like, I don't know how that could, I just don't know how that could be possible to run that on a laptop,

especially as you're expanding into like these 24 different shards and a beacon chain and everything else. I just don't know how that technically could happen. But I'm sure if I tweeted it, I would probably get a thousand people in my, in my comments section that tell me this and that and everything else. it is worth noting that like we so historically this this history that frequently bitcoiners talk about Ethereum with this with this consensus and node operations at the beginning of Ethereum it was very much a concern like the the speed of hard disks over stolid state drives really bottlenecked

how fast you could sync up with a chain and that was a very big cause for concern because if you can't sync up with the with the leading chain with the with the latest block then, well, then at some point you'll never actually get there, and you were only going to be, you know, trusting a very few centralized node operators. Now that kind of solid state drives are kind of the status quo, and now that the hardware of the world is upgraded, that's also been mitigated. But also at the same time, a brand new Ethereum One client came out just a couple weeks ago called Aragon. And now you, and that's actually the fastest Ethereum One client for sync speed ever. And I think that's what Ryan was talking about when it's in, half a day, and that also made hard disks now viable to sink the eth one chain. So not only

moving forward is consumer hardware just getting better and more capable of supporting Ethereum, but Ethereum client teams are actually innovating to make Ethereum more capable for consumer hardware. So it's actually improving in both directions simultaneously. So Preston, let's maybe move back to your question of proof of work and proof of stake. But like I do want to establish that I think there's actually a shared agreement here that both Bitcoiners believe that individuals should be able to run a full Bitcoin node on consumer hardware.

So do Ethereum's. Like, we do. Like, legit. That's the point. That's the entire point. If we can't run ETH2, validators, not the archival nodes, but validators on consumer hardware,

the thing doesn't work. Other chains, smart contract platforms, run thing in data, run hardware and high performance data centers, that can't be the case with ETH2. We want to keep this thing decentralized. So you could tweet it out on Twitter, get a bunch of responses. You can listen to Ethereum researchers like Justin Drake, talk about the cryptography, magic. You can be like us and understand maybe like 50% of all of those things.

But that is the design goal and that is the value system. But let's get back to proof of work versus proof of stake because you said you had some other problems with proof of stake. So one, I think, is the critique that the rich get richer. Can you talk about that a little bit? What do you mean by that? When I think about what worked historically before we even went into a digital space, the reason gold worked so well is because, you know, it's really kind of hard to find an ounce of it in the Earth's Cross because of the distribution of it and what. not the amount that there is.

So when you look at why gold served the purpose, it's very obvious from a scarcity standpoint, why. And then you look at the work that had to be performed with a shovel or whatever in order to pull it out of the ground. It makes sense real fast as to how it basically achieved its value. When I look at, you know, and if we were just going to take it to extremes, because I think that's the best way to understand something. Let's just say that a protocol had a pre-mine, 100% pre-mine, and there was no work performed on the units that were created inside of it.

And let's just say that it had a cap and that no more were going to be created and they were somehow able to decentralize the whole thing and then just issue out, equally distribute those units out to everybody with no work being performed. You're in a situation there where it's going to be hard to say what the value of those units are if there's not some type of utility to that network for everybody to use. And then the utility is going to just naturally provide whatever value that might be. When I think about proof of work and how it requires energy expense in order to generate the units before they're in. issued. What, what's occurring in that situation is a recapital investment in the hardware in order

to, let me put it this way. If you, if you bought a mining rig four years ago, and I bought one right now, I have a, I have a bigger advantage or I can capture more coins, that's rare that the new entrant has an advantage over the old entrant, right? So like you came into it four years ago. It's harder for you to capture and mine the coins than it is for me. And I think that what that does, and when you look at proof of stake, it's a little bit different. If you had first access to the coins, you now have an advantage over somebody who's now just coming in that's trying to capture them and employ them into the network. So you're saying it's basically like so if you, so one mental model we use for staking tokens is that they are like tokenized A6, right?

So like what are A6? These are, this is hardware, but it's capital essentially, right? It costs a certain amount of money. Tocons in Ethereum, Ether as a token, is like a tokenized ASIC. But I think what you're saying is basically like A6 in the hardware world, they depreciate and they get old. And so, yeah, after four years, it's going to be completely obsolete. After one or two years, it's going to be half as good as the newest model, essentially. And so these tokens essentially, the ASICs kind of expire and bleed out of the system.

Whereas in Ethereum, the tokens are permanent, right? They don't depreciate is what you're saying. And you're saying that that maybe leads to some churn in the system. The person who's mining, when you're mining, you have to be a great operator to continue to fetch the newest issuance of supply in to remain competitive in the process of securing the network. Right. Only the best operators, the people who can, I mean, I'm not a minor, but I can see how competitive it can get, especially if you're, if you're subscribing to the cycles,

you know, the four-year cycles and that there's these bare markets and things like that and how they got to manage their derivative exposure for their energy costs and all this kind of stuff. It is extremely difficult to do that effectively and to stay in business. Like, you have to be a good operator to do it. And so what it does is there's an incentive to continue to increase the security of the network by buying new hardware and not using old hardware because of Moore's law. And you're also pushing the coins into the hands of the fittest operators that are then redistributing them back into society. But aren't these fittest operators?

Aren't these the ones that are the best operators that do have the best operators that do have the best? best connections to hardware and supply chains. So David actually got into this space. I know his story because, you know, we do podcasts together. He got to this space because he was mining ether from his living room. He used to, we used to do podcasts. He used to have the, okay, bathroom. You used to have the mining equipment behind him when we, like, we do this podcast, right? Still over there, yeah. And that was in Ether's early days when you could do that from home. You could no longer do that because of economies of scale because you had to be an operator with data center with like well i think that actually talks to the renewable energy piece more than anything

else like i tell people can we talk about the rich get richer piece right because haven't we just undemocratized haven't we just given this like power to those who have these economies of scale and we've moved it david can stake from his apartment but like he can't run minus equipment from his apartment. So like, is that less decentralized and less democratic, if you will? No, I would probably, no offense to you, David, I would just say that if David was really hell-bent on being a great miner, he, and if that was really his core business, what he would have done is he would have gone and found cheap renewable energy in order to continue to do his operation. but instead he unplugged his rigs and somebody else took on that responsibility or they bought new hardware

and then think about the distribution of those coins. It's not going to him as a first mover advantage. It's going to somebody new that's actually finding the cheapest and most, you know, clean energy that they can possibly find. I tell people all the time, if you want to get into the ESG stuff, just go ahead and plug a mining rig into the wall and see how long you last. well well preston here what happened was i got washed out i got washed out by people that had economies of scale like i was making the the the Ethereum blockchain super secure in the comfort of my own home enjoying a free heating bill and and then i got washed out by other people that had the capital to invest in the economies of scale and what i always get hung up with with the uh the and when the individual gets washed out for the for the large capitalized entities with economies of scale, it's a centralization

vector. And so like not only does like the footprint of Bitcoin become very, very instantiated in the physical world, but like those supply chains become a part of the security of the Bitcoin network. And that physical instantiation, I think is is a risk factor. And this, this argument that like BTC gets this churn from from Bitcoin miners being hypercompetitive, ultimately, it actually just turns into cell pressure. And what I just have a fundamental disagreement with is like, blockchains are supposed to be secured, not distribution. They are supposed to be maximum security.

And I think it's more of a moral argument rather than an investment argument as to that Bitcoin mining needs churn, right? It's actually not an argument that Bitcoin is a good financial investment. I think it's more of a moral argument as this is what I think good money looks like. So as far as the centralization piece goes, so miners can participate in whatever pool that they want. If you don't like how the pool is managing whatever, you can leave, you can take your mining rig. So I don't see the whole centralization piece. The part about the hardware being centralized or that there are only being a few producers,

I think that's a valid concern and something that is a huge opportunity for anybody that wants to try to start moving. production and things like that outside of some type of countries that supply a lot of the hardware. I think that that is something that's worthy of a discussion. But as far as the actual, like you were saying that it went to economies of scale type operations, I would tell you that it went to locations that was getting really super cheap. I mean, you guys saw the whole volcano thing today. I mean, that's where this is all going to migrate to is. The whole ESG thing for me is really a huge misnomer because I think that what we're finding

and the reason why people that were doing it out of their house initially, which was extremely inefficient, it's moving to the places where it is becoming efficient and great operators that are able to manage the process. Yeah, and I'm actually compelled by that argument. There's, Bitcoiners really pound that, you know, Bitcoin is green drum. and I tend to kind of agree with that side to a lot of consternation from a lot of the Ethereum people that I hang out with. I do a podcast with Christian Carolla's from Bitcoin Magazine, Bitcoin Media, and he goes so far as to say, it's like, not only is Bitcoin going to be green, but Bitcoin is actually

going to put power back into the grid out of the demand for Bitcoin mining, right? But then if that's true, then there actually is no more churn anymore, except for the hardware costs, but if you have zero electricity costs or even negative electricity costs, the whole rich gets richer argument comes back to the people that was able to instantiate their perpetual mining farm with never having to sell all that much Bitcoin because they have free energy or even negative costing energy. I think where a lot of Bitcoiners go down the path of like store value is exactly what we have right now, they're looking at it more from, hey, if you've got a bunch of money. Let's just say you've got $100 million worth of ETH. And it doesn't really require

you to have to do anything from this point forward to still have an enormous vote in the future of, you know, transactions. And so, and then the concern about exchanges, and I know you guys talked about how in ETH two, you guys are going to make it very easy for anybody to basically run a fractional piece of a validator, which I think. is a good thing. But at the same time, you're not able to control these exchanges and the ease that they're going to supply for people that are maybe just buying eth on the exchange and they just immediately go ahead and stake it because they're lazy and don't really care about too much on the decentralization front. I believe that it's still going to potentially provide a

pretty good centralization concern. And there's no way to know, right? Like maybe. maybe I'm dead wrong because, you know, we might be years out from that becoming a reality. But I think that when you look at proof of stake, I'm sorry, when you look at proof of work, it's like, I mean, really the full nose are really kind of calling the shots on the Bitcoin network. I have no concerns on the centralization of Bitcoin, right? And I think proof of work has done an amazing job at being able to provide it. One other thing that I would tell you that I think a lot of people, even in the big coin space might not agree with me on. I think proof of work actually is driving a lot of the price

action of this entire space. So I'm sure you're familiar with the labor theory of value that Adam Smith is famous for, which is you go out there, you perform some type of labor and then the cost of the units that are being harvested are a direct result of that. Most economists will spit on the labor theory of value and tell you that it's worthless. I think in this really unique situation of Bitcoin that it's actually valid. And the reason I think it's valid is because it's commoditized and the hashing keeps going up. So when you look at the hash rate and it keeps accelerating and going up, part of that's Moore's law. But I think the other part of it is just the sheer demand for the units and the work that's actually being performed. And so if that's

valid and that there's this, I would look at it like if we were selling wheat on a corner of a street and the line was just getting longer and longer and longer for the wheat. We could make the conclusion that whatever work is being performed back there and expended in order to bring it up to the table to sell it, that there's this one-to-one kind of comparison for the amount of work that's being performed based on the constant demand flow to consume it. And I see Bitcoin in a very similar ways. And I think at the root of that is proof of work. So as these halvings occur each four years, I think one of the reasons, and I don't know if Ethereum people laugh at this or not, but I take the stock to flow valuation very seriously. And the reason why I do is

because I think it's actually a representation of the electrical expense for the number of units that are now flowing and being dropped into the market. And that's why we see these waves that happen almost literally down to the day for the bottoms, the bare bottoms, and the peaks are almost exactly four years apart. And I think that what's driving that is at the engine of all that is this proof of work mechanism that's actually putting a price tag of the electrical expense for the number of units and the scarcity as it keeps ratcheting up every four years. So you're a big believer, Preston, that like the four-year halving cycles are super important and that these scarcity shocks every four years, they have a material impact on Bitcoin cycles.

Yeah. And I think, to be honest with you, I think proof of work is an enormous part of that. Can I just share the story of- I have no proof? Well, so, I mean, the stock-to-flow model, right? I mean, I guess it's held up over time. It's kind of that chart going up, right? And where I think it's hard for Ethereum, because it's proof of work, it's been proof

of work since inception. But I think it's harder for that to be, seen in the price of Ethereum is that the monetary policy has changed. I've seen the chart of kind of like how it's with Bitcoin, it's so systematic. Like you know exactly what in the world's going to happen, when it's going to happen. And like, I mean, it's just, it's clockwork. And so I think that that's why it's so predictable. Okay, Preston. So since you are a supply shock bull with respect to Bitcoin, I want to run this by you. And like, keep in mind, this may sound crazy to you at first because it does sound a little crazy the first time you're hearing it.

But I want to blend what we're just talking about with proof of stake and the next conversation, which is monetary policy, issuance policy, because these things go hand in hand. So right now, the Ethereum issuance is about 4.5% annually. I think it's like 1.5% annually for Bitcoin, something to that effect. Maybe it's 1.3% something to that effect, something close to that. So Bitcoin definitely has the supply scarcity advantages at this point in time. But that may not be the case for long because there are two supply shock catalysts that are coming very quickly to Ethereum. And as you said, Ethereum doesn't have this four-year cadence schedule and issuance.

Its issuance policy is minimum necessary issuance. And when we get to proof of stake, we need a lot less issuance to secure the network. But let me run them both by you. So the first is something you've probably heard about, which is EIP 1559 press net. You've heard about this, I assume. Yeah. Okay. So summertime, what happens sometime June, August, an update is going to go through.

And this is in the regular Ethereum Maynet, ETH one, as we call it. All of the transaction fees, a large portion of the transaction fees, like tens of millions a day at this point in time, are going to start being burnt. instead of going directly to miners, right? So this is kind of like a variable supply shock, right? But it's definitely a supply shock. So if part of your bull case for Bitcoin is, well, it goes up because miners don't have as much Bitcoin to sell, this is absolutely the case with Ethereum. because like a whole chunk of the supply, rather than going back to miners, is actually just getting burnt permanently.

And this is variable because it depends on blocks-based demand on Ethereum. But blocks-based demand on Ethereum lately has been very high. This could go up, this could go down over time, but it's definitely a catalyst. So you've got that in effect. That will bring down issuance a little bit, like say a percent. or so annually, this will vary. The next supply shock happens when proof of work gets turned off. So when Ethereum talks about ETH2, there's no actual monolithic ETH2 that is like suddenly here. At some level, staking has already been active since December 2020, and ETH2 is going to be implemented

in phases, all kind of an Ethereum upgrade path. There is really no ETH2. There's kind of like staking is put in place and proof of work gets turned off and then later sharding gets put in place. And that is what we call ETH2, right? It's all kind of Ethereum. And so what happens probably within the next nine to 12 months, let's call it Q1 2022, is all of the 4.5% issuance on proof of work main net Ethereum gets turned off, gets replaced by proof of stake issuance. And But the nice thing about proof of stake, and there's a great podcast we did with the Ethereum researcher Justin Drake, who goes into this, is it can be much more efficient from a capital efficiency perspective versus proof of work. So it takes a lot less capital at stake to secure the

Ethereum network in a staking economy than it does in a proof of work network. So the rough order of magnitude is like it's a 10x improvement. So issuance and proof of stake gets to go down to about 1% annually per year. And that fluctuates based on how many people stake. The more people of stake, the more issuance on the Ethereum network, the fewer, the less issuance. And that's all market driven and completely open and variable. So what that in effect does, we have EIP 1559 this summer, starts burning ether, right? And then we have proof of work turning it off. And we get to this thing that sounds silly as a meme,

it's called ultrasound money, which is just basically a play on words like, it's sound money, but it might even be negative issuance. If EIP is totally max, EIP 1559 is totally maxed out, we're burning more ETH than we're actually minting on an annual basis. We might get into the negative territory. some years and actually have a negative issuance rate. So from a stock to flow ratio, right, again, you can't model all of these variables, but you can start to put some financial models in

place. In fact, we've done some of that on bankless. What would it look like in an optimistic scenario for block space demand? What would it look like if 30 million eth was staked versus five million eath stakes? You can get some parameters in terms of what this might look like in the feature. But it's absolutely going to mean if this is successful, there's execution risk. You talked about that in the intro. But like if the execution risk is mitigated, put aside if this actually happens, we're going to see a massive supply shock in ETH and an ossified, much more solidified monetary policy. Does that sound crazy to you? Like, what's your reaction to that? So first off, I think that this could be bullish for the price.

Doesn't mean I'm going to buy it because of my concerns, like I outlined earlier as far as the technical risk. But as far as just the sheer shock of the lack of issuance going out, I think it could be bullish for the price. Now, where I think I have a concern for the use of the protocol. So one thing that we've learned, you know, once we started having. having a free-floating currency. The thing that we learned is that it created a major incentive between nation-states to debase their currency in order to attract other currencies into that local jurisdiction. So, like, if the dollar would debase itself and become the dollar would get weaker,

what it did is it attracted the euro, the yen, into the United States. And it was beneficial for businesses because we were attracted. all that capital into the country. And then vice versa. So then when the U.S. would debase their currency, now all of a sudden the Europeans had the debase there so that they could suck the dollars and the euros back over into their jurisdiction because they had a weaker currency.

So what my concern would be is ETH is trying to have this protocol that incentivizes people to come and use and, you know, burn gas on their, on their protocol in order to run all these programs and and decentralized finance and whatnot, right? Like, you got all this activity and all this utility that you're trying to use on the protocol. But my concern is, is if you start getting into this super sound money and you start appreciating the value of the eth, what might happen is you might actually incentivize the use of using other chains, basically cashing out the appreciation and the value of the ETH to go over and spend it on another chain's utility, which is then going to create this situation where you almost

have like a currency war kind of situation between protocols. So my concern for a protocol that's trying to do decentralized contracts is that if the value of it keeps going up, let's just look at, you know, we'll go back to the Fiat currency, because I think it actually provides a really interesting parallel here. If the value of the dollar starts getting really strong, those products and services inside the United States, people aren't doing them anymore, or they're not coming here to buy them anymore because they're too expensive. Would you have the same thing happen with the ETH protocol if the value of the underlying an inherent token that's associated with it

is appreciating in value. I do think... I do think... To base it to try to incentivize use. I do think some people get tripped up on this. And David and I have even had some debates on this where it is like, there are two different markets in Ethereum.

As there are in Bitcoin, right? So let me just flip to the Bitcoin world, right? In Bitcoin, there is Bitcoin the asset. That is an asset. It's a money. It's a currency. Right? But then there's this other commodity inside of Bitcoin called Bitcoin Blockspace, right?

And like there's a set amount of block space in every block, right? And the only way you can buy that commodity, which is Bitcoin Blockspace and get your Bitcoin transaction in, is by purchasing Blockspace with what currency, with Bitcoin, right? So there are these two different markets. in Ethereum, there are these two different markets as well. There is ETH the asset, and that price can go up and down for a variety of reasons. Maybe it's because people are listening to this podcast and they get super bullish on Eith, right? So price goes up.

But they're not necessarily, Blockspace does not necessarily go up along with the asset price. Block space demand goes up when people want to use the Ethereum chain more. So that's a separate market for block space and ETH as an asset. Now, you still buy block space with ETH. That is kind of the currency. It's like petro dollars, right? It's like oil is priced in dollars, largely, but oil is the commodity here, and dollars are the currency.

It's kind of the same thing in Ethereum. So these are separate markets. So if the ETH price goes up by like a factor of 10, that doesn't necessarily mean anything for block space. Now, many times these things are correlated because if ETH price is going up, then people are like, well, I'm using Uniswap. And so we're using more block space

and we're using more transaction fees and I'll pay much more to get my transaction through to buy more ETH and all of the other DFI tokens are pumping too, so I'm doing more of that. So there's correlation, but these markets are actually different. So I'm not sure that you get that foreign currency debasement problem. What you could get, though, Preston, and this is kind of a bare case for Ethereum is like the presence of all sorts of other layer ones and smart contract platforms or even layer twos and side chains or even Binance chain, for example, people might say, well, now we have all of this super cheap block space. So why would we spend so much for on Ethereum block space?

right and if that becomes true then what you'll see is eith gas price full, eth block space demand go down, eth revenue flowing to eIP 1559 and getting burnt, all of that going down and some of that activity migrating to other chains. What we tend to believe is like the most economically dense transactions will ultimately come to the most decentralized and secure base chain. Someone like Bitcoin, right? Like, there was a time in Bitcoin's history where Eric Forhees was doing Satoshi Dice, and we're using, like, Bitcoin block space for crazy things, like things that we wouldn't use it for today because it's just too expensive today, right? But the most economically dense transactions stayed. And at some point in time, you know,

it might not make sense to even move $10 or $20 on the Bitcoin network. It might be just thousands of dollars of transactions. It might be just, a bunch of crypto banks doing settlement on Bitcoin. Something similar could happen to the Ethereum chain in that only the most economically dense transactions will occur on Ethereum. Less important transactions, lower value transactions might occur on layer 2s or even side chains or even other layer ones or or, you know, Binet smart chain. So that's one way I might answer that. So this is what I'll give you guys. I find it really interesting. And I find, that it's going to be demonstrative to all the other competitors in the space that are trying to do smart contracts, for sure.

As to whatever it means, it's really kind of hard to know at this point. Do I think it's going to be bullish for the underlying price if the scarcity gets tighter? Absolutely. But it's not something that – and I think this is important. Like, just me personally, like, I just see so much technical risk on the migration over to ETH2. So I just kind of keep my hands off. Do I think it could outperform? Sure.

Right. Like all those things. I just, I'm more than happy to say those things. It doesn't, you know, I find it funny when folks are like, it's not going to do it. And it's like, well, it might do it. You got to wait to see. And it's not a big deal, right? And if it underperforms, so what.

You know, relative to Bitcoin, vice versa, right? In general, I think we've all learned that scarcity of units, digital units, is bullish for the price. So what you guys described, it's going to be really interesting. Now, I think the bigger concern of the community is that. timeline of this migration. You know, I heard Vitalik say not too long ago that he thought it was going to happen this year. And then I just recently heard that it's now the end of 2021. And like I just, I know I've said this a whole bunch.

But at the end of the day, I think the thing that I think a lot of Bitcoiners, and I don't mean to speak for the Bitcoin community, but I think the thing that frustrates a lot of them as they look at things and they say there's a lot of technical risk. And when they're seeing conversations, they don't necessarily see that. And I don't think that anybody has to do this. But I think it would benefit the Eath community if they were more up front as to the risks associated with how difficult this is as to what you're trying to pull off. As a bitcoiner, that's how I see it. Right.

So those conversations do exist. And we've had, you know, Danny Ryan, Justin Drake, Vitalik on the podcast to very explicitly like go after those things. Yeah. At the end of the day, there is just some sort of disposition, differential disposition between Bitcoiners and Ethereum's. And Bitcoin as an asset is fundamentally trying to be a risk-off asset, which is kind of like crazy for, if you go tell like someone like Warren Buffett that Bitcoin is risk-off, he's going to be like, what? But no, in the crypto space, like Bitcoin is risk-off. And so it makes sense that, like, people who resonate with Bitcoin see the upgrade path of Ethereum. Rather than getting bullish, like me and Ryan, they get like, oh, they see risk there rather than an opportunity. And I think that that's perfectly described. Like, so what you guys see is like this upside and this really exciting, like, movement that's about to take place. I'm looking at that and like wanting to run the other way.

It's not like any type of personality, like conflict between the two of us. I just, you know, we just see it differently, right? We're just viewing it through a different optical lens. I mean, I understand what you're saying because like even when you first jumped into Bitcoin, you know, 2015 or so, like it was kind of, the project was kind of done. It's pretty ossified. Yeah, there's some things in lightning. That's very true. Like, so I know whenever I first got into it, like Mike Hearn came out with.

a, this was like, I don't know, a few months, maybe a quarter or two after I got into it for the first time. And he was basically wrote his resignation of Bitcoin and saying, I remember that. It's not going to scale. Like you got these transactions that take 10 minutes. How is that ever going to be used? And, you know, spooked a ton of people. And sure enough, a technical solution emerged. And so I think for for people like yourself, you might be looking at. where maybe the technology solution is there and maybe going to arise and you're going to do all these gee whiz things to kind of tie it together. And I'm looking at it and saying that's too many things. There's too much going on and like, hey, maybe it'll get there. And if it does,

you know, I'll be more than happy to come and take a second look at it. So it's just, it's a, you know, it's a little bit of a cultural difference between the two different communities and just risk appetite, I guess. Let me throw something else out at you, which is on kind of a different subject. We talked about proof of work versus proof of stake. We talked about issuance. I want to talk about the importance of defy because you gave us a big hell yeah when we talked about like defy.

And we are hell yeah on defy too because this is the entire point of crypto in our mind. Like bankless. So the podcast name is like for a reason. reason, right? Yeah, go ahead. So for me, first and foremost, sound money is the thing that why I'm in the space. Okay. No central bank. That's sound money, basically. Yeah, is, uh, exactly. So when I look at the issues that we have happening in the world right now, for me, it comes down to like one thing. It's the fact that central banks can step in and just debase the currency and manipulate the market. Like we don't, we don't have free and open markets today, in my opinion.

Like, it's just completely manipulated. And I think that sound money in like a unit of account that can be used by everybody in the world that can't be manipulated is the solution and the big, the really big thing right here. I think the decentralized finance is a great thing that's going to enhance banking to everybody in the world, which is insanely important. But if I was going to kind of put them in order, I would tell you the sound money piece and kind of fixing the central banker's ability to just to base everything. It far out weighs the priority for me on what's going to solve all the issues

we're seeing in the world right now. I get it. And I understand that prioritization. So let me make this argument to you. First of all, I would say, what if you could have both? I'm sure you'd be like yes. But also, like we want both. But also, what if I were to say this? I think you need defy or you won't get the sound money that you're actually seeking. And here's what I mean. Like, if we look at the history of gold, the way the banks put a stranglehold on gold was through centralization, through custodying of the gold. You actually had to bring your gold to a bank fault and deposit it. Over time, those banks kind of collected into the central banking system that we have today that is now controlled by the nation state. It was that centralization of custody

that actually got us to the place that we are today. And I see very much that unless we have a decentralized banking system, not banks, but banking, right, then we could get to that same place with something like Bitcoin. So here's what I mean. I feel like a Ethereum with Uniswap, for example, the ability to trade without a centralized intermediary. You don't have to give up your private keys at all, right? You don't have to put it in Coinbase or Gemini or Binance or any crypto custodian. You could just trade with any other asset, right? That is a trading as a banking service, and that is decentralized. The ability to borrow or lend these other money verbs, in defy without a bank, right? So rather than go to blockfi, where you have to give up your

private keys, which is great. Nice Bitcoin crypto bank service, nice service. You could go to Ave or compound, and it's just code. There's no central intermediary. What do you guys think of Hoddle-Hoddle? Because that's really popular in the Bitcoin space, and it doesn't have any inherent token, but yet everything can be settled between the peer-to-peer on the blockchain of Bitcoin. So this is a website that's a defy that's peer to peer. You go to the website. Now my concern with it initially was hey, like, you know, anybody can go in there and shut down the server of this

website. But, you know, I had it explained to me by the person who created it that that you can still complete the contract with the other peer on the blockchain, even if the website was down. after the contract was initiated, obviously. It's a multi-sig exchange function. Yeah, you have your own private key, you know, one of three keys, and Hoddle, Hoddle holds one of those keys in the event that the counterparty, you know. So when I look at that, then I'm saying, hey, this is being done today on a platform like that

that doesn't have any inherent token associated with it. why won't we have more of this in the future? Why do we have to have this whole virtual machine with all these inherent tokens and like uniswap? You guys can maybe talk this in more detail, but my understanding is that uniswap used to not even have an inherent token and all of a sudden they issued one, which makes me feel like the founders that kind of stood it up,

wanted to basically get their fair share of what they created. But for Bitcoiners, they see a lot of that and they say, hey, we have this thing over here that doesn't require any of that. And that's probably where the future is going to end up going. So I have a couple of thoughts really quick on that. So first of all, any real defy on Bitcoin is awesome, is great in my mind. Right. So like this is all part of going bankless.

So something like hoddle, hoddle, if it fits that criteria, and I know you can do some like basic smart contracts on Bitcoin with multisix and that sort of thing. that's all great. Like, I hope Lightning is super successful, too, right? That is a bankless peer-to-peer transfer service. Like, what I would say, though, is without the EVM, without the general compute, I had a friend in high school, do you remember those TI-83 calculators? Oh, yeah. Okay, so, like, he used to love to program apps and, like, these crazy apps on the TI-83 calculator.

And I would look at him and be like, why are you spending time? Like, there's no keyboard attachment. He would literally use the number controllers to, like, actually convert it to alpha like alpha numeric text and like program this thing. And like, why don't you just use a computer over here with a real screen and some Java script and like build your program that way? And that's a little bit how I feel like with Bitcoin is because it doesn't have the expressivity baked into the base layer.

you could do some stuff. You can create some apps. But you have the power of a graphing calculator when you could have a much more powerful system. And so it's not that these things won't exist in some form. It's just that they'll be less powerful. And so like the question is, why hamstring yourself? Or like, you know, maybe it's okay for Bitcoin to not be optimized as a D-Fi system and the way Ethereum is. Yeah, I think it goes back to my prioritization that I was talking about. So, like, priority one, like, you have to have sound money. Priority two, if we can do defy, let's do it.

And so why do we need to have that on the same base layer? Do we need to have it? My argument is that we don't. Why can't ETHB sound money to you? Because it is non-sovereign. It is digitally scarce, right? It has a similar governance mechanism as Bitcoin. I'm not saying ETH has to be the only non-sovereign story value,

but why can't it be one as Bitcoin is? So A, anything's possible. B, I would tell you that I just see the code base is just being so complex and difficult to audit. I think is probably the best way to put it. Like when I think of Bitcoin, it's so insanely easy to audit what it is and what it isn't, that anybody can kind of look at it and quickly come to the conclusion like, hey, that is not going to have any types of issues.

When you start talking about something that's doing all of these things with 64 shards and like you don't necessarily have to run a full node, but then there are some that like have the whole archive and some that you're doing fraud proofs and, you know, erase your coding and all this kind of stuff. Like it's really insanely hard to wrap your head around all that. For me personally, I don't have my head wrapped all around it. And so, you know, we look at the El Salvador announcement. I really think that the reason that you have a sovereign nation that's now has claimed Bitcoin

is their legal tender in their country is because it's so easy for them to understand it. It's so easy for anybody within their country to run a full node. And I think, you know, that's today. 10 years for now, maybe it's different. I don't know. But I think that that's one of the reasons why. It's just so simple to understand. Preston, I want to go back to this hoddle,

hoddle thing really quickly because there's some very fundamental differences that from what I'm seeing with the explanation on the website versus what we're seeing in DFI and specifically on Uniswap, it looks like it's a custodial arbitration service for two buyers and sellers of Bitcoin, right? So you create a multi-sig, and so that's one transaction on Bitcoin, and the seller deposits Bitcoin into this escrow multi-sig, right? And you are basically using this arbitration service to make sure that the buyer pays the seller the right price. And then, Then there's a payment for these bitcoins in the Fiat world using actual like Venmo, PayPal. They say on the website, buyer pays a seller according to the agreed upon method.

And people are asking for PayPal, Chase Banks, Grill, Nuteller, some sort of Fiat payment in the legacy world. And then when that payment goes through, if it goes through as according to the terms of the agreement, then the agreement has been made as a handshake deal on the internet off chain, not on chain. that agreement goes through and hoddle, hoddle, attest this as the arbitrator says that, yes, this went through, or the buyer can just do it, then those funds are released. This is very, very different from just uniswap, where it is one transaction in and out, and it was trustless from the

beginning and trustless from the end, and you didn't need this like middleman arbitration service to facilitate this trade. Have you ever made a trade on uniswap? I have never been, And I think this is important. I've never used defy. And the reason why I've never used defy is it actually comes down to most of the money that I'm managing is through a corporate account. And so I can get myself into all sorts of issues and shut down my cash account of my business. If I'm doing these activities, these financial, because they would see it as financial activities whenever I'm not a financial business. And I think this is a major hurdle for the space in general, because when you think about large amounts of capital, it's nested inside of businesses with their retained earnings and marketable securities that they could then be allocating into some of the space.

None of them will get anywhere near this at the concern of potentially losing their cash account of whatever banking service they still have to use today. to start doing some of these activities. On an individual level, I could be, but I'm not. You know, I just buy Bitcoin and huddle it. If I send you some ether, is that compliant so you can play around on DFI, make your first unisop trade? Will that get you under the radar or will that, is also not cool? I mean, I could accept it on a personal level.

Yeah. Yeah. I, you should ask them for this is a good opportunity. I'm sure there's a price of how much ether would take. Yeah. You know, the space is really interesting to me. I, but again, I just, I'm not real comfortable with the maturity of it at this point. And maybe, and you know what, maybe I'm missing a massive opportunity by waiting as things

continue to mature. And I'm fine with that. And maybe some of it's just my personal financial situation, right? Like I don't have to go out and do these, these fantastic things to really kind of improve my lifestyle or anything like that. So I'm, as an engineer, honestly, I find the space absolutely fascinating. I lack the encryption understanding and I lack the software engineering background to really kind of fully understand everything that's happening.

But I, but I will say this. I understand how difficult it is. especially in an open source kind of way to be able to manage all this where you don't have some sort of systematic risk that could potentially insert itself into a protocol that does all of these things. And that's my concern. Preston, this has been a really cool conversation. I think just a couple more things as we close. But I think listeners really like having people from different perspectives on a podcast, actually make their, like, the case of the other. So I'm wondering if we could do like a steelman kind of argument here of like, what's the most

compelling thing to you about Eith or like steel man, the case for Eith for us, and David and I will do the same for Bitcoin. Do you want to have us go for Bitcoin first? No, no, no, no. Yeah, I love. of being able to shoot holes and kind of look at things from the exact opposite lens. So the thing that I would tell you that I find really interesting about your space is uniswap, particularly. I find it really interesting that you're able to do this decentralized finance, that you're able to put liquidity basically in the Bitcoin space.

They're going to cringe hearing this. And I'm not saying that I promote this in any way, or form, but I find it interesting how there's been a solution that's kind of arrived to provide liquidity into something that typically would not have liquidity. And you see that through Uniswap, where you got these really obscure, just total, you guys would agree with me, shit coins. Yes, they are some. You got these really obscure shit coins that are able to have liquidity applied to them in a completely decentralized way, I think it's, I think in most cases,

it's a total Ponzi, nearly most cases, like all cases of these coins that have no utility whatsoever, right? It's just a total scam. But the fact that this has been experimented with from like an R&D standpoint, in that, what's the equation you guys use? It's like A times,

X times Y equals K. X. Yes. This equation, which is so simple and just so like generic, is able to provide this amazing kind of way to value these coins that have no liquidity. I find that, especially as a market kind of person, just mind blowing. So what does that mean in the future for? So I immediately go into like equities and like what that might mean for like real stocks, especially if we start tokenizing stocks in the future, which I think is where this is all going to go. And once they get tokenized, they have immediate settlement. You're going to start getting into over collateralized lending markets as being like, you know, pretty much how all lending is done,

which I think is really exciting, which I mean, which I also think is going to blow out yield, which is going to reprice everything and it's going to be a massive redistribution of wealth. And so I think at the heart of all that is going to be some way, shape, or form it's going to be decentralized exchanges. Whether it's Uniswap, I have no idea, whether it's going to be ETH providing that or, you know, EOS, Tron, Binance Smart Contract. I mean, Cardano, PolkaD, I have no idea. I just find the space fascinating. good answer there you go david you want to you want to steal man bitcoin first i'm almost equally curious as to what you'd say oh no i'm so happy to have the floor right now all right so

it's it's 1970 nixon killed the the gold window uh and all of a sudden the dollar uh becomes unbacked and all of a sudden everything kind of slowly slowly starts to go wrong uh and you know it's pernicious it's like the frog boiling the water But 40 years later, we have meme stonks. We have doge coin. We have kind of what my POV crypto podcast co-host calls a clown world, whereas nothing is real anymore. And we have these, you have the nifty 50s that, you know, so they can only go up. We have the housing market bubble.

And I think financial markets just lost their grips on reality. And not only did financial markets lose their grips on reality, But if your money loses grips on reality, you lose grip on reality. And Bitcoin was the first thing since the gold standard, since the dollar was on the gold standard, to reestablish what is fundamentally real. And not only is it fundamentally real, but it's now it's digital and on the internet. And it's one of the greatest globalizing, unifying technologies that the world has ever seen. Since gold, you know, one of the reasons why gold was so adopted and valued as a money was that it was equally distributed all over the world.

You could find it in every single continent. And Bitcoin and its online nature, and not only it's online nature, but also its long-term orientation. And why Bitcoin needed to be a hands-off technology from as soon as possible is because in a world with, you know, fake money. in a world with like, you know, assets that we kind of play around with PE ratios, but it's really narratives at the end of the day. Bitcoin was like the first real thing to have to force people in a long-term time horizon. And it was a great, like sobering event or like a waking up event for, for the people that figure that out. And for the people that became Bitcoiners early on.

And everything about Bitcoin is centered around that. the proof of work, the hard cap, the focusing on making the network extremely optimized, just chugging out blocks every 10 minutes, like a clockmaker's perfect design. And now we have this great model for what the future of the world can be with the values instantiated by Bitcoin. Maybe that was a bit of a monologue. That was kind of something that was something tangential that maybe it sounds like that's been brewing for a while.

Yeah. But no, no, Bitcoin's great. Bitcoin's fantastic. I guess my steel man is that we don't need all of this DFI stuff, right? So like the steel man for Bitcoin is that all you need is that sound money at the base layer. Bitcoin can provide that. It will secure itself into the future. And then basically these crypto banks will kind of do the rest.

So the blockfies, the coin bases, and the binances, they'll be custodial at first. But maybe they'll start to incorporate some proof of reserve. type of schematic. So you get some additional transparency. And maybe that will be enough. Maybe you'll be able to easily spin up a Bitcoin bank and that will be kind of the banking layer. And then as you were saying, David, like Bitcoin just becomes kind of a wrecking ball and its meme and its brand just of digital scarcity, just eats into bonds, each into all of the asset classes. And you get sort of a some state of, you. Some state of Bitcoinization, right, with this crypto banking layer on top. And the whole DeFi thing becomes

a niche and NFTs and it doesn't fully work out. That would maybe be the bull case for Bitcoin in my mind. And I think it's a good base case for crypto. Definitely. I think on bankless guys, if it wasn't clear for you, we've always been bullish Bitcoin. We've just been more bullish ETH and more bullish D-5, but we've still been bullish Bitcoin the whole time. Preston, that was a good steal, man. Let's maybe end on this. How can Bitcoiners and Ethereum's, how can these two communities help each other moving forward? I was just struck by this.

Before we came to record this podcast, I just watched a U.S. politician talking about how possibly it would be a good thing to make it illegal to go. from Bitcoin to Fiat like anywhere and maybe a bunch of nation states could band together and make this happen. And I have to wonder if this is a response to El Salvador or what this is a response to. I feel like we've always talked about the final boss

coming to crypto. That's something that all proponents of self-sovereign money like want to fight and want to keep at bay. Maybe that's something that we can collaborate on as a crypto industry, as Bitcoiners and Ethereum and other crypto communities, what would you say to that? And what are some other areas? You know, at the end of the day, I just, I look at all of this that's happening as almost like an immune response, like a global immune response to toxic sludge being poured into the global

economy. You know, if you went to a pond and you just poured like this toxic sludge, you're going to get the Simpsons like three-eyed fish that kind of comes out, right? But when you look at how biology just naturally heals itself, you'd see like everything on the side of the pond just kind of, you know, starts turning like different colors. But it's the, it's working itself out. It's solving whatever that sludge was that was put in there that was not natural. And so I see the reaction of Bitcoin being that. I see the reaction of all these other protocols, call it Ethereum and all the other ones that I named earlier, is also being the experimentation of just a natural evolution trying to solve the issue at hand, which is all these issues that have come out of unsound money and market manipulation.

When I look at how I interact with the other people in various spaces, whether it's Ethereum or whatever, I'm just as guilty as the next person, especially like we talked about on social media of just kind of blasting out and being quite brash in the way I see things. But when you're in person and you're talking to somebody face to face, you get a much more human kind of reaction between. between people. I know people in the Bitcoin space will look at Ethereum or anything else and just say, scam. It's a scam. I'm looking at it and saying, I think that there's well-intended people that are really trying to solve something here that see something from maybe a different vantage point or a different lens than how I've grown up and how the things that have led me to the belief structure that I have right now, which hasn't changed at all through the conversation or, you know, after the conversation. But I think being respectful of other people and assuming that they're well intended is probably the most valuable thing that anybody can do not just in this space, but in general, in society, with each other.

And so, you know, I think that's probably the thing I'm going to take away most through this conversation is just be a little bit more respectful of other people and to, you know, ask the questions. you know, at the end of the day, the first thing I said when I came on here is I want to learn your vantage point. And I really wanted to kind of, you know, ask certain questions and you guys as well to try to kind of understand why you guys sit where you sit. And that's where a real value is created is through understanding other people's point of view. So I think that those are some important things that we can all think about. That's awesome. Preston. Well, let's end on that note. Certainly some tumultuous time ahead for the world. And we'll do better. if we stay unified on the values that we all stand for. Preston, thanks so much for joining us

on bank lists. It's been great to have this conversation. Yeah, thanks for having me, guys. Guys, action items, of course, I will include a link in the actions to Preston's podcast, Bitcoin Fundamentals. One of my favorite recent episodes that he did was an episode with Greg Foss on Bitcoin and Bonds. Take a listen to that. And secondly, We need some more five-star reviews on iTunes to get us to the top of the charts. Also, David will appreciate me saying this. If you are listening on YouTube, please like and subscribe, right, David, did I get that right? Absolutely.

We want to be right behind Presence podcast on the top of the Business and Investing podcast. And so if you could get us there by giving us those five-star reviews, we would super-duper appreciate it. All right, guys, none of this was financial advice as usual. Bitcoin is risky. ETH is risky. crypto is risky, you could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But thanks for joining us on the bankless journey.