Behind the Bastards - Part One: Let's Talk About Cryptocurrency

Episode Date: December 7, 2021

Robert is joined by Sofiya Alexandra to discuss cryptocurrency.FOOOTNOTES: https://www.vice.com/en/article/y3dyem/investors-spent-millions-on-evolved-apes-nfts-then-they-got-scammed https://web.archive.org/web/20210910175831/https://www.evolvedapes.com/mint https://www.theverge.com/2021/3/20/22334527/nft-scams-artists-opensea-rarible-marble-cards-fraud-art https://amycastor.com/2021/03/14/metakovan-the-mystery-beeple-art-buyer-and-his-nft-defi-scheme/ https://davidgerard.co.uk/blockchain/2021/03/11/nfts-crypto-grifters-try-to-scam-artists-again/ https://davidgerard.co.uk/blockchain/2018/04/05/debunking-but-bitcoin-is-like-the-early-internet/ https://digiconomist.net/ethereum-energy-consumption https://www.natlawreview.com/article/art-and-money-laundering https://www.artandobject.com/news/how-money-laundering-works-art-world https://www.forbes.com/sites/forbestechcouncil/2021/06/29/nfts-and-the-missing-layer-of-utility/ https://venturebeat.com/2019/11/19/arm-treasure-data-the-most-popular-games-arent-necessarily-using-lots-of-microtransactions/ https://www.inputmag.com/culture/wanna-buy-a-475-dollar-nft-ticket-to-see-that-beeple-nft-artwork-in-person https://www.theverge.com/2021/8/31/22650594/banksy-nft-scam-pranksy-ethereum-returned-duplicates-art https://www.wsj.com/articles/scammers-see-new-frontier-in-nft-art-11629896400 https://thenextweb.com/news/a-brief-history-of-mt-gox-the-3b-bitcoin-tragedy-that-just-wont-end https://www.bloomberg.com/crypto https://blockonomi.com/mt-gox-hack/ Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

Alphabet Boys is a new podcast series that goes inside undercover investigations. In the first season, we're diving into an FBI investigation of the 2020 protests. It involves a cigar-smoking mystery man who drives a silver hearse. And inside his hearse look like a lot of guns. But are federal agents catching bad guys or creating them? He was just waiting for me to set the date, the time, and then for sure he was trying to get it to happen. Listen to Alphabet Boys on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. What if I told you that much of the forensic science you see on shows like CSI isn't based on actual science?

And the wrongly convicted pay a horrific price. Two death sentences in a life without parole. My youngest? I was incarcerated two days after her first birthday. Listen to CSI on trial on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. Deloaded! I'm Robert Evans. This is Behind the Bastards, a podcast that is always opened by me shouting out the name of my favorite painkiller, Deloaded. Ugh, it's good stuff. I'm hopeful because Sophia just got mailed a bunch of knives by our fans. And now I'm kind of hoping that some fans will send me a bunch of Deloaded anonymously in the mail.

Can we also say that Mama loves Darvissette? Oh, Darvissette. Yeah, it's the good shit. Maybe consider that. And honestly, I can't think of a better idea during a time in which a lot of people are dying from fentanyl overdoses in tainted pills than asking strangers to send us random medication in the mail. That's just good thinking. Again, Podcast Daddy and Podcast Mama love to gamble. Everyone knows this. We like to roll them bones, baby. I got a coffee cup and eat the rich coffee cup. It's actually sitting next to me right now from a fan recently, but it came in packaging that I've never seen.

The packaging made sense in retrospect, but it was like a box with rounded edges made entirely out of styrofoam that was like taped up and had very official looking labels on it. And it looked like the packaging you'd put in through like a vial of medication or like like bacterial samples or something. So I was looking at this package like, should I open this? What the fuck is in this thing? That's how I felt getting all these knives. I was like, oh, this could really be a terrible package to open. Most of these did not have names on them. And I respect that because, you know, the government doesn't need to know what we send to each other. Yeah, anonymously send your favorite creators weapons in the mail. And these knives were amazing. I just did a little tour of the knives for Robert and Sophie. There's that amazing US Marine Corps knife.

The K bar. Yeah, that's a good knife. You can fuck some shit up with a K bar. That's the kind of knife if you get a like jab your way outside of a car. Nice ass leather holster. Like, yes, I love it. Thank you so much. Someone sent a tiny miniature knife for like little baby knife for stabbing tiny babies. For stabbing little fetuses. Yeah. Take it for my fetus knife. It loves it. Yeah, that's the kind of knife that like like babies young enough to be legally aborted in the state of Texas would use in a knife fight. Yes, to try to fight the people that will not give their mother's rights.

Yeah, yeah, I got two loose knives that came with a collection of other things like a bag of matzah. And you know, yeah, that was weird. That was I love that guy. Yeah, so just like some some maniac in a Midwestern state sent you a sack with loose knives, matzah, a cigarette. It was incredible. Hey, it was multiple notes. Yeah, they were all very sweet and told me to take care of myself and my friends and family with these loose knives. And now that is the name of my new band, Loose Knives. When you walked me through that, us through that package, that is the proudest I've ever been of my fans. That was an incredible way to send a gift to somebody just loose knives with a cigarette and a sack.

One rolling paper and a single rolling paper. Loose matches. Yes, bitch. Loose matches. Please, thank you. What an amazing, what a hero. Someone sent me lavender bath products along with a tiny knife that goes on my key chain. Someone else sent me and it looks like a key that I can sneak into an airport and that person knows me best. Yeah, they specifically said this doesn't, this isn't visible on X-rays. God, that's some queen shit, you know what I mean? Thank you. That's, you know, having, when people, when people send you stuff like that in the mail

and just like, here's how you can smuggle a knife on an airplane, stranger whose content I like, that lets me know that we're reaching the right demographic. I feel seen, you know? Absolutely, absolutely. Beautiful people. And when I was telling Robert before this, I was like, yeah, I used to fly with a knife in my purse all the time on airplanes. And not because I was like trying to prove a point or anything. I just always carry a knife and I would forget to take it out before I flew and they never got it. It took me like 15 times of flying before finally someone was like, is that a knife? And I was like, oh shit, yes it is. And then I lost it.

But now I have a K bar, so fuck them. And this tiny key knife. Make sure you check the K bar, they will probably find that. I won't fly with that one. That's just for local stabbings. Okay, that's for local stets good. Yeah, you need to have like, not every knife is suitable for stabbing people in every situation. Like if you're going to shank somebody in an airport bathroom that's past security, you want the key knife. Exactly. Exactly. But a K bar, you know, it's for a different thing. It's a different kind of vibe. It's a different kind of, you know, stabbing. The K bar is the knife that like, if you have to, in the style of a parable of the sewer, hike on foot from Southern California up to Oregon in order to save yourself during the climate apocalypse and crash in my compound.

That's the knife you take with you to stab people on the road. I was thinking more of like Cheryl Strait's like wild, you know, like I'm on the doing the Appalachian trail, you know, maybe I stab something to eat. Maybe I stab a man who wants to get in this pussy, you know, you never know what happens out there. And you could eat him too, you know, at least not, I always say. Yeah, you think I would stab a man without eating him, Robert. The heart first while it's still beating, everyone knows that. That's how you get his power. And then we slice up his butt cheek meat. That's the best meat.

Into some steak tartare. I imagine human cheek because like beef cheek is delicious. I imagine people's cheeks would be pretty good too. I don't think they have as much like fatty loveliness, but probably they're not bad. Yeah, they're probably pretty good. They're probably like, you know, when you eat like a fish head and you get like all the parts out of the head and they're like delicious. I mean, we should probably ask one of our fans to just send. Please don't. Please send us.

Sophie, come on. You said we're not allowed to talk about doing a 9-11. You said we're allowed to. Just know that I've cut what Robert just said for safety reasons. Look, Robert, we're already getting sent knives that you very aptly said could be used in a 9-11. Yeah, you could do a 9-11 with some of those knives, for sure. I'm saying that's enough for us. We don't need to encourage.

You're right. We can get our own. Exactly. That's what the knives are for. And in the meantime, my K-bar is for like local stabbings like your farm to table kind of. Farm to table stabbings, for sure. And then the other kind of stabbings that are like more, oh, you got to travel to stab who you want. That's what my little airplane knife is for. That's good. That makes sense. So none of this has anything to do with what we're talking about today, which is...

Cryptocurrency! Cool. So, Sophia... I never planned to do an episode on NFTs or cryptocurrency because I think it's all very silly. I am not a believer in any of this stuff. But over the last couple of weeks in spite of myself, I've gone down a rabbit hole specifically inspired by some NFT scams that have recently come to light

that I just found absolutely fascinating. This is not going to be an episode about a specific bastard. And to be honest, even like the victims here are not people I really feel that bad for because they're gambling with money that only exists because it destroys rainforests, basically. Like it's like... Crypto's, I think, mostly bad. But this show primarily functions by me getting interested in something and then reading about it. And this week, I didn't want to read about Peter Thiel or some sort of genocide, chichescu or whatever.

Fair enough. I wanted to read about cryptocurrency, so I did. And the person you can blame this episode on is David Gerard, or David Gerard, who wrote a book called Attack of the 50-Foot Blockchain. David is a senior Wikipedia editor. He's a volunteer spokesperson for Wikipedia. He's also an author and a crypto expert who is a no-coiner, which is somebody who doesn't, is involved in the cryptocurrency world,

often reporting on it, but does not actually hold any himself. And he doesn't hold any because he seems to pretty much think it's all bullshit. He is widely despised in the cryptocurrency community. But as far as I can tell, he is very knowledgeable and he's a good writer. I recommend the book heavily. He's also pro some of the fundamental ideas that are behind cryptocurrency, which I actually kind of am as well. At the beginning of his book, he cites a quote from Bitcoin creator Satoshi Nakamoto's original manifesto,

or white paper, whatever you want to call it, laying out Nakamoto's basic goal of the Bitcoin project. Quote, a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. So you can see, right, just that basically, if you take out everything that's happened since, if someone were to tell you that idea back in 2005 or whatever, hey, this is what I want to make, that's not unreasonable, right?

Maybe that's just the libertarian in me, but I get why you would want that. Real quick, we did not do an intro, did we? Why would we do an intro? We didn't intro, we talked about knives. I just wanted to make sure Sophie's faces were all covered. Everyone knows who you are, you're Sophia Alexandra. Thank you so much. Normally we talk about horrible dead baby things, but this week we started by talking about knives and cryptocurrency.

Yeah, and then you said, look, you lured me here under false pretenses. I thought there would be dead babies instead. You were like, we're talking about NFTs and I'm like, oh, not on these fucking titties. How about this? You were like, that's not what NFT stands for. Cryptocurrency is incredibly environmentally wasteful. Every individual popular cryptocurrency uses more electricity and emits more carbon per year than many nations.

That leads to horrific climate change, which kills a shitload of babies. Tens of millions of babies are going to die additionally every year as the world warms and as air pollution increases. You're just saying that to make me feel better. Sophia, I guarantee you there are mountains of babies being killed by this. Mountains of them. I don't believe it. Sophia, I will, for the next year,

every time there's a horrible natural disaster that affects babies, I'm going to send you a picture. A tiny baby hurricane? Yeah, little baby hurricanes that just affect NICU warts. Oh, and NICU? Oh, we're tiny. We've gotten all the incubators. Yeah, tropical storm, widow-bitty baby.

Yeah, I don't think anyone's sending me knives after this. No. Sophia, but like so, okay, cryptocurrency. The basic idea that Nakamoto was going for behind Bitcoin, that doesn't sound entirely unreasonable to me. A way for people to send electronic money directly without using a bank or without involving a government, right? I don't have a fundamental issue with that idea.

In fact, I think there's reasons for which it could be valuable. Now, I was a libertarian most of my life. I'm kind of more on the anarchist spectrum now, and I don't really like large, powerful, centralized institutions. Yeah, so you could see, again, if Bitcoin wasn't a thing, if all of the shit that's happened wasn't a thing, someone said, hey, I'm working on this idea, you might have thought like, oh, that sounds like a neat experiment to try.

It's worth giving a shot. One of the other things that Nakamoto was talking about, and a lot of early people who were into cryptocurrency talked about, was the promise that it would provide an option for people who were unbanked, which is folks who, for a variety of reasons, maybe their location, the nation that they live in, the level of poverty that they have, whatever, maybe the fact that there's a lot of people in places like India

who don't legally exist because of where they were born, there's just nobody keeping track of people there. Their identity is often tied up in the community that they live in, rather than a bunch of government documents. So a lot of these people aren't going to be able to have an account with a financial institution. So one of the ideas was that, well, if you have some sort of electronic currency that doesn't rely on a government or a financial institution,

it would provide an option for those people, and specifically an option to do microtransactions. So like sending small bits of money, you know, from one place to the other. None of this has wound up happening. Cryptocurrency does none of this. Like absolutely none of this. Well, I was going to say, that's the thing is, if that's what it was, that would be tight. That's not what it is. And it's kind of like when I read about that ship that was like

an independent nation, you can buy your like thing on it with crypto. And then it's like, oh, we didn't realize how hard it is to... It's actually very hard to do this. To have a ship and a government and infrastructure, but you're on a ship. Oh, fuck. So yeah, the idea is like, sure, that's cool, but you did not think through anything like eating or shitting in the sea. Or the laws of the sea or what it takes to actually operate a boat of that size. And I actually really like that you brought that up.

And the story for people who aren't aware, there's actually a good article about it. A bunch of like libertarian crypto nerds bought a cruise ship at the start of the pandemic and sailed it off the coast of Panama in an attempt to create an independent nation there. And we're basically like selling bunks on the ship. And the idea was that would be like a perfectly free country. But for one thing, you can't be perfectly free living in a tiny room on a cruise ship. Like people weren't even allowed to have like microwaves in their room. They didn't have their own kitchens. They were a lion's paw.

There's no way to be able to do this in a way that is safe. So to be like, okay, we have to be safe. They're like, you can't have a microwave and whatever, which is like hilarious. When you're like, this is the freest you'll ever be. Except for you can never cook again. Welcome to freedom. Like I love the movie pirate radio. I think that's one of those people who live on that boat and do a pirate.

That's my dream. I would love to like live on a big boat with like 20 something of my friends and run a legal media stations. That sounds like the coolest thing you could possibly do with your life. Everybody has British accents. And everybody's very British. It would be rad as hell. But obviously the idea, anyway, the reason I think that it's good that you brought this up is that it's a perfect example of what has happened

with a lot of cryptocurrency. We'll talk about this a little more in a bit, but like all of these people are good at one thing and it makes them think they're good at a bunch of other things, or at least they could figure it out. Like these crypto nerds were like really good at making a bunch of money in crypto. In other ways, like a lot of them were business owners. You know, they're the kind of libertarians who did have a skill. They made their money doing something.

And they were convincing to us that like, well, how hard could it be to like operate a cruise ship? Or just I'll be able to hire somebody to operate it. How complicated could the laws be? And it's like, well, it's a nightmare. And it's the same thing with crypto. It's the arrogance of someone that like decorates their house nicely and is like, let's just flip houses. And then they're like, oh no.

Yeah, this is horrific. I do not understand how to do that. I just know how to buy shit off of Wayfair and my bad. And I should not have tried to be an HGTV person. I've seen a lot of the same thing in like the pot industry because I was living in and around pot farms during like the height of the marijuana gold rush in California. Talk dirty to me, Robert.

A lot of people who like would get in and try to start farms and like made a bunch of money doing something else, something in business or whatever, like in the tech industry and would like, well, now I'm just going to like, I'm going to be a pot farmer and didn't realize that like, because they'd grown like a couple of plants in their house or something at early light. It's like, no, no, no, actual pot farming is one of the hardest things you can possibly do. And it necessitates very close contact with incredibly date-cost.

Even if you're like organically using pesticides, you're basically spraying sulfur in amounts that you have to wear in a fucking Tyvek suit. Like it's hard. And all of these people like crashed and burned because they had no fucking clue what they were doing and they couldn't physically handle the demands of running a farm because farming is hard.

It's like a lot of these... People love to think shit is easy from the outside. Yeah, yeah. It's a human problem. It's not just a crypto problem. No, everybody thinks something that you don't know shit about from the side. You're like, this shit is easy. I see it a lot.

And you're like, oh no. It's like the utopian kind of socialist and anarchist communities that I have a lot of love for, but a lot of people who are like city kids talking about their dream of buying land and operating a farm. And I'm farming about an acre right now. And the people who are engaged in the project with me have been doing it a lot longer and are much better at it than I am.

And even the little bit that I'm doing is like, it's shitload of work. And that's like a little bit of land, not even trying to be fully self-sufficient. Like it's all, it's this thing people do is like, I don't, I think that this thing sounds fun. How hard could it possibly be? Oh no, it's a problem.

The issue is that like, Same with a homemaker problem. It's like the idea these, you know, a lot of these men have been like, oh, well, like all you do is fucking stay at home and take care of the kids in the house. How hard could this be? And then like, you know, COVID happened and they had to do it for a little bit. And they were like, oh my God, what you do is hell.

And it's like, yeah, bitch, everybody's job is hard. I don't know what you think an easy job is. Just being rich is easy. Oh, I would say like, if it's being, I think I could be a CEO of literally any company out there and do just fine. Yeah, but that's not a job. That's like, that's like, like what the royalty is in Britain, you know?

Yeah, I could be a great queen of England. Oh my God. Ceremonial, you know. Yeah, I could be a pretty good Pope too, I think. But yeah, anyway, we're getting... Can you be the Pope and I'll be the queen? Absolutely. We can finally destroy the Church of England. I can't wait.

So the issue here, like this is the thing we all do, underestimate how difficult things that we don't have experience with are. It's Dunning Kruger stuff. And like, for example, if you and your friends buy five acres of land and realize farming is much harder, you have two options. Either you give up or you actually get better after a while. I didn't eventually figure it out. Either way, the worst case scenario is like, oh, I made a mistake

and this is harder than I thought it was. If what you're trying to do is completely recreate a financial system, the mistakes you make will be things like, oh, I've been illegally selling unlicensed securities. Oh, I've been illegally operating as a money transmitting like organization without any of the proper paperwork. And now I found out that I've actually been committing numerous felonies. Oh, what I've been doing for years is actually embezzlement.

And I was unaware because I don't understand any of these financial regulations. And I just thought it was easy to recreate all this. I thought that because it was cryptocurrency, there's no laws around it. And actually it's all still regulated the same way the rest of the economy is. And I've been committing numerous crimes, which is why a lot of these guys go to jail. Like a lot of the big crypto dudes either go to jail or flee the country because they either learn or, yeah, anyway, this is what we're talking about here. So at the moment, at best, Bitcoin is an extremely volatile speculative commodity

that uses an ungodly amount of electricity and is a huge pain in the ass for most people to use. It has not freed any individuals from reliance on centralized bank type businesses. In fact, part of one of the things that everyone gets excited about is Bitcoin's dollar value shoots up regularly to a high level. But you're still excited that it's worth a lot of US dollars, right? It's a money-making scheme to get people rich in actual currency. And the people I know who are smart in crypto have done that.

I have a friend who, when Bitcoin was like 500 bucks a Bitcoin, he was moving to Europe and he put a lot of his money into Bitcoin with the idea that, well, I'll move to Europe and I'll sell it for euros and I'll wait a lot of transfer fees for doing that. And he just kept some of it in there as the price shot up. But he did very well. But his goal was always like, well, I don't... This is a gamble, right?

And he's someone who enjoys gambling. And that's fine. If you want to gamble, I don't have an issue with gambling, obviously. We sell sports betting and stuff. I have no moral problem with gambling. But it's not a functional currency in any meaningful way. It just isn't. It's, again, it bests like a very volatile kind of investment type thing.

Also, I got to say with like the environmental footprint that all of us are making every day that's just so fucked up and with corporations not giving a shit and not changing anything and the government not giving a shit and not changing anything. It's like, I mean, I understand trying to make money, but I just feel like making money from a thing that destroys the environment is like another level of making you feel bad. And it's like, yeah, all late-stage capitalism makes you feel bad

and participating in it. But if you know that there's no value to what you're putting money into and the thing they're putting your money into is just made up so that people could make money, and then while it's made up, it's just making the environment worse. Well, here's one of the things about it. Why? I think when you first got into it,

especially if you got into it when it was not worth much, the environmental cost wasn't much. It hasn't always been as bad as, so the way that Bitcoin works, right? The thing that gives it scarcity, like when you're mining it, when you're doing it, is basically, computers mine it by having to do a bunch of calculations. It's called proof of work, right? And the longer time goes on in order to keep the thing at a steady rate

while processing power increases, the calculations get harder. So at the beginning, very little power, comparatively, was used to mine Bitcoin, but it just gets hard, like the math the computers have to do, gets harder and harder and harder over time, and that increases the amount of electricity that Bitcoin requires. And I don't think a lot of people thought about it at the time, especially since, as we'll cover, this was just kind of like one of a... At the start, it was one of a couple of different crypto things people had tried.

And in 2010, I don't think anyone could have guessed that Bitcoin would eventually be drawing more power than dozens of nations. Because it didn't start that way. It was kind of like... And when Satoshi Nakamoto created it, it was like an experiment. I don't even think in his mind it was going to be the final product, the actual cryptocurrency he wanted to create. It was like, let's see if this works, and then maybe iterate.

Do you think that the idea that it could possibly become that was even something that people thought through all the way? I don't think so, because there's a number of things that are really, really dumb. It was like the atom bomb, where you didn't know that that was going to happen, but then it did and it was fucked. Yeah, there's a bunch of things they would have done differently, like Nakamoto and the people who were kind of getting it off the ground, I think would have done differently if they'd known how successful it would be.

For one thing, one of the reasons Bitcoin can't work as a global currency is that there is a hard cap on the number of transactions worldwide that can ever occur. There can never be more at present than seven Bitcoin transactions per second, planet-wide, which doesn't work. Wait, explain why. It's math shit. I don't understand the math, but that's the way it works. People have proposed different ideas for expanding the number of Bitcoin transactions

that can happen. There's kind of ways to basically change the code at a fundamental level, but it hasn't been done. This handicap means that as Bitcoin has gotten more popular, it has gotten more expensive just to make a transaction, so you have to pay because it takes power and stuff in order to even start a transaction. You never entirely know when the transaction is going to happen. About 20% of them just get cancelled because there's this massive blockage

in terms of actually getting... Because you have to actually enter transactions onto the blockchain. That's the whole thing about Bitcoin is it's on this thing called the blockchain, which is this persistent record of every Bitcoin transaction, and only so many transactions can get written to the blockchain at a given point in time. It's at about seven a second right now, which makes it a huge... One of the people talk about Bitcoin being used for drugs, and it is, it has been on the Silk Road and stuff,

but it's a thing where individuals will buy amounts of drugs with it, but drug dealers, big name people, hate would never use Bitcoin for this because you don't know that the transaction is going to go through. You don't know when it's going to go through. Wait, let me ask you this. Just like if there's... It's like trying to get tickets to a hot-ass show or something, and you're trying to type into Ticketmaster or whatever the fuck, and it's like telling you...

There's a lottery almost, yeah. Yeah, it's not happening. To be able to make a transaction. And then if you get it in that exact moment, you get your thing, and if you don't, you don't. Yeah, it's kind of like that. And again, this is because, number one, when it was invented, I don't think Nakamoto had any idea that it would ever be this popular.

And it was not... They hadn't thought all this out, right? Because it's a new thing. And the problem is that... Do you think anytime you invent a new thing that you think, what's the least that could happen with it, and what's the most that can happen with it? Do you think so? I don't think necessarily you do if you're the kind of person who just thinks this stuff is neat.

Like if you're the kind of math brain engineer type person who just enjoys the intellectual problem of a cryptocurrency, he thought through a lot. There's things about Bitcoin that are very smart. There is a reason it's been as successful as it is, and is used as widely as it is. There's a reason why of all of the different cryptocurrency projects that have existed over the years, Bitcoin is the biggest one. There were things that he did right, but it's also like a guy trying to dream up

basically a whole new economic system. It was always going to be incomplete. No, but I guess it's like any kind of... And forgive me for making this a science fiction comparison, but it's like any science fiction thing where it's like, oh, it starts off real good, but you got to think about all the best things that could happen and the worst things that could happen. So I feel like a lot of times, I don't know if I buy that these hyper smart people

didn't think about what could happen because I just think that they did and they were like, oh, whatever, we'll worry about it later. Yeah, I mean, maybe. I don't know. And I'm not trying to say that in a negative way. I'm just trying to think maybe the excitement of inventing this thing makes it so that even if you consider what the possibility of the endgame is, you're just like, oh, I don't care because this is so exciting.

Yeah, I think that's a big part of it. I think it's nerds being excited about a thing. It's like all of social media. It's kind of the same thing where no one thought through what might happen because they were so excited about like, oh, can we make this work and can we get people interested in this thing? And that was a more important question than like, hey, do we think we might need to be able to do more than seven transactions

a second worldwide for this thing? Hey, what if it winds up using more power than multiple entire nations worth of people and burning down Rainforest in order to exist? Like, and again, it's also Bitcoin gets started in 2009, right? Like the technology is in such a different place then that I don't think they necessarily thought, oh, dozens of different like Chinese corporations are going to buy massive mining rigs that are powered by coal plants in order to like mine more Bitcoin.

It was like, it's a guy on a project in 2009. You can't anyway. That's a lot to envision and predict. We'll talk about like why, because the fundamental problem in a lot of ways with Bitcoin is that rather than it being what it should have been, it was like, oh, here's an experiment. Here's the ways in which it was successful. Here's the ways in which it's failed.

Let's try a new thing. It's still like the thing in cryptocurrency, the biggest thing. And it's because people are ideologically invested in it. And that is a problem because it's obsolete. It's bad. It's heavily flawed in a number of ways and shouldn't still exist. Like something better should have come along, but people are ideologically committed to Bitcoin.

And that's a problem. And we'll get to that problem more. Wait, wait, wait. One thing. I know we have to go, we have to promote some goods and services, but really quick before we go, I just want to say that, you know, honestly, some of this is like reminding me of what it's like to be a standup, right? When you're like trying jokes out and in the beginning it's like,

sometimes you'll say some stuff that ends up being reckless and not something that like you fully thought the implications of or, you know, you fully understood was going to be actually what you were trying to say, because you're just trying to say it to figure out what you're saying. And that sometimes is what happens. And I think like the differences is like when you decide to let other people, when you decide to commit to that or when you decide to whatever,

but like no one's blameless. There's jokes that I know I've done that are like shitty before I got to the like the final version of the joke. But I guess it's just so scary that the not final version of a joke for these people is on the scale that ruins rainforests and countries. And that I think is wild. And I think the only thing I can compare it to is being like someone like Dave Chappelle, you know, where like you put out a big ass special that's just like you being like,

I am a committed transphobe and then, you know. Bitcoins the Dave Chappelle of currencies. Yeah. And like Dave Chappelle, it was cooler in 2009. It's true. And my heart is breaking. All right. Speaking of Dave Chappelle, you know who doesn't create transphobic comedy specials? It's going to be an ad for Netflix. Oh, no, wait, fuck.

Well, here's Netflix. What would you do if a secret cabal of the most powerful folks in the United States told you, hey, let's start a coup. Back in the 1930s, a marine named Smedley Butler was all that stood between the U.S. and fascism. I'm Ben Bullitt. And I'm Alex French. In our newest show, we take a darkly comedic. And occasionally ridiculous.

Deep dive into a story that has been buried for nearly a century. We've tracked down exclusive historical records. We've interviewed the world's foremost experts. We're also bringing you cinematic historical recreations of moments left out of your history books. I'm Smedley Butler and I got a lot to say. For one, my personal history is raw, inspiring and mind blowing. And for another, do we get the mattresses after we do the ads or do we just have to do the ads? From iHeart Podcast and School of Humans, this is Let's Start a Coup.

Listen to Let's Start a Coup on the iHeart Radio app, Apple Podcast, or wherever you find your favorite shows. I'm Lance Bass and you may know me from a little band called NSYNC. What you may not know is that when I was 23, I traveled to Moscow to train to become the youngest person to go to space. And when I was there, as you can imagine, I heard some pretty wild stories. But there was this one that really stuck with me about a Soviet astronaut who found himself stuck in space with no country to bring him down. It's 1991 and that man, Sergei Krekalev, is floating in orbit when he gets a message that down on Earth, his beloved country, the Soviet Union, is falling apart. And now he's left defending the Union's last outpost. This is the crazy story of the 313 days he spent in space, 313 days that changed the world.

Listen to The Last Soviet on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. What if I told you that much of the forensic science you see on shows like CSI isn't based on actual science? The problem with forensic science in the criminal legal system today is that it's an awful lot of forensic and not an awful lot of science. And the wrongly convicted pay a horrific price. Two death sentences and a life without parole. My youngest, I was incarcerated two days after her first birthday. I'm Molly Herman. Join me as we put forensic science on trial to discover what happens when a match isn't a match and when there's no science in CSI. How many people have to be wrongly convicted before they realize that this stuff's all bogus? It's all made up.

Listen to CSI on trial on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. Oh, we're back. So from the beginning of a... I'm so sorry. So again, I think there's some neat promise and some of the ideas that inspired people behind cryptocurrency. But one of the issues with it is that from the beginning, it's been primarily an ideological crusade rather than a quest to actually develop something that's inherently practical. In the book Attack of the 50-Foot Blockchain, Gerard quotes Roger Vair, who was an early cryptocurrency advocate, as saying, At first, almost everyone involved did so for philosophical reasons. We saw Bitcoin as a great idea, as a way to separate money from the state.

Now Gerard goes further, explaining that much of the ideological justification for crypto, as it exists, is tied to what's called cyber libertarianism. And here's how he defines that. Computer programmers are highly susceptible to the just-world fallacy, that their economic good fortune is the product of virtue rather than circumstance, and the fallacy of transferable expertise, that being competent in one field means they're competent in others. Cyber libertarianism is an academic term for the early internet strain of this ideology. Technological expertise is presumed to trump all other forms of expertise, e.g. economics or finance, let alone software sciences. I don't understand it, but it must be simple is the order of the day. And that's the issue here, is what we were talking about a little bit earlier. And obviously at this point, because there's a lot of... I don't understand it, but it's simple. It's kind of like a motto for me and my 20s dating men.

Yeah, and that's not a bad motto for dating men, especially men in your 20s, because we tend to be pretty simple. But it's worth noting here that a lot of people who use crypto now, because there is so much money in it, are gamblers or scammers, not particularly believers in the ideology. When we're talking about the ideological part of crypto, it is the backbone still of cryptocurrency. It's a lot of the people making stuff. It's a lot of the people who are the loudest evangelists. But most of the people who make a lot of money off of crypto aren't believers in anything. In a lot of cases, they're just scammers. They're people committing serious financial crimes to get rich themselves by robbing people and defrauding them en masse. And that is a huge amount of cryptocurrency. One of the things about it is because there's no state, there's no bank, there's no protection. So one thing that can happen is if you're doing a Bitcoin transaction and you type in the address you're sending it to wrong, that money is just gone. It's like if every transaction you made was an even worse wire transfer, basically.

I mean, I've done that on Venmo before where you send money to someone who you thought you were sending it to, but it's not the right person. Yeah, but I guess Venmo has the decency to give you money back. But this ain't going to happen with your cryptocurrency shit. No. Now, one of the things that is frustrating here is that you have these true believers in the ideological promise of cryptocurrency. And they provide cover for a lot of the scammers, often not intentionally, but the fact that there's these people saying, no, this is like a crusade and we're separating money from the state and this is good. And a lot of people are able to cloak themselves in that to steal tens of millions of dollars. And it's very profitable to do that. For the true believers, the quest for a currency free of central control goes back decades. Cryptocurrency is actually a lot older as an idea than you might guess. In fact, PayPal was actually founded with the understanding that it would be a perfectly anonymous way to send and receive money without government oversight.

In 1999, Peter Thiel told his employees that thanks to PayPal, quote, it will be nearly impossible for corrupt governments to steal wealth from their people through their old means. Now, Thiel wound up making it big. Sounds like somebody's underestimating governments. Well, and his own greed, because once Thiel gets rich, he stops saying shit like this and he moves on to found the most powerful surveillance company in the world, spying for the federal government on its, multiple federal governments on its citizens. So, like, again, a lot of these people, even the ones who are ideological, are absolutely willing to, like, turn on a dime if there's money in it. Now, digital currency, though, has a long history philosophically.

The idea seems to have originated from a fellow named David Chowm, who was a computer scientist and a cryptographer. In 1982, Chowm wrote a paper titled Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups. This was a thought experiment on how to create a trustless form of digital currency. Bitcoin is trustless. The blockchain, all blockchain cryptocurrencies are trustless, and trustless means that you cannot fake either the currency or the transactions, right? It's very, it's not entirely impossible, but it's very difficult to fake a Bitcoin transaction, right? Or to fake a Bitcoin because of the sheer amount of math necessary in order to, like, make one, essentially. And the blockchain is very close to an unalterable record of transactions.

So that's what makes it trustless, right? You don't have to trust somebody that, like, the transaction's happening and going through. It's indelibly recorded on this thing. So, 1982 is when we kind of have the first person develop the idea for what becomes the blockchain. It's a persistent, unfalsable, viable record of transactions. Now, Chowm did try to create his own cryptocurrency in 1995 with a company called DigiCash in a thing called eCash. eCash was supposed to be perfectly anonymous. I'm sorry, both of those names are so 90s.

I know. It's incredibly 90s. I imagine he was wearing Jinko's the entire time. And one of those, like, Skoli from X-Files suits with the huge shoulders. Hell yeah. But also, do you remember that LA Styles or LA Gear gel? Do you know what I'm talking about? Yes. Yes. What was it called?

I know what you're talking about. We're going to Google it during the break. But it was all, like, neon colors with little bubbles in it. And you would put it all over your shit. That's the equivalent of this. Hell yeah. Yeah, that's exactly it. It's the cryptocurrency equivalent of that weird S we all drew on our binders when we were in middle school.

Yes. I'm sure that was the logo. The one that is for a weird reason, like, shout out millennials. Kind of. Yeah, like, kind of like a dollar sign, but not, but also why, you know? We loved it. We did. We absolutely did. So eCash was supposed to be totally anonymous.

And the idea of a currency that's transactions couldn't be tracked by a government enticed a lot of powerful people. And there was significant money put behind DigiCash and eCash. David Marquot, who is the co-founder of the venture capital firm, August Capital, and a former Microsoft board member. I'm sorry, is Marquot is like a cumquat or like a low-quat? Yeah, it's kind of, M-A-R-Q-U-A-R-D-T. Yeah, yeah, that's a, that's like a red cumquat for sure. Yeah, it's like a red cumquat that gives $10 million to David Chowm's cryptocurrency scheme. Also, a cumquat is what I call your girlfriend.

Meow. Wow. Very irresponsible. Can we get HR on the line, Sophie? No, Sophie is not an employee. Sophie is HR. And guess what? I guess that's fine then.

She approved this fucking message. So only one bank agreed to use eCash. They implemented it from micro payments. They were in like Missouri. The system was not popular. Damn, that bank is less popular than I was in middle school. Fuck. And yeah, the system was not popular.

It was dissolved after three years. It just didn't like catch on in any way. David blamed this on the fact that the internet had gotten more popular in the late 90s. And the ideological and privacy-obsessed nerds that he'd written his white papers for were not the bulk of the internet anymore. Quote, as the web grew, the average level of sophistication of users dropped. It was hard to explain the importance of privacy to them. Most people were like, why do I need to learn how to use a whole new weird digital money thing

in order to keep my transaction secret? And you know what, to be honest, I'm sure if you wanted to give him the actual drug dealer answer, like, no, I care about privacy. That's why I use fucking cash. There is a perfectly anonymous way to translate things. Exactly. No way to trace it back to you. That's why drug dealers do everything in cash.

That is like the funniest thing about this is like, because they're all such fucking nerds. It's like, we have to have a way to make transactions that nobody contracts. Yeah, you can just use cash. Stop reinventing the wheel. You know what it reminds me, that old chess nut about how America spent like so much money developing a pen that could write upside down in space. And Russians just use a pencil. I don't know if that, is that one of a method or not?

I don't know if it's real, but I'm just saying that's like that old chess nut. Yeah. Yeah. You see that a lot. There is, I will say, as somebody who used cryptocurrency to buy drugs over the internet, there is one realistic use case for the anonymous currency, which is that if you're trying to buy illegal drugs through the internet, you can't use cash, right? You do need an option for that.

And some of these people attempted to provide that. In 1996, some weird libertarians invented... Wait, wait, tell your girl what kind of drugs you buy. I'll get to that. I'll get to that. Okay, cool. In 1996, some weird libertarians invented e-gold, which was supposedly an anonymous digital currency backed by actual gold. So it was on the gold standard, but it was crypto, which to be honest, at least makes more sense than like bitcoins based on like the scarcity

of being able to perform hard math calculations thing. I don't know. Whatever. Good luck getting someone to send you gold in exchange for your crypto, though. Well, yeah, I don't know that that ever happened. But like modern cryptocurrency, it was way less anonymous than its founders claimed. E-gold handed over their records to law enforcement when requested. Nevertheless, it was popular for more than a decade among people who wanted to buy drugs over the internet from shady Canadian pharmaceutical websites

and needed some hint of deniability about it. I can confirm that e-gold worked pretty well for this because, um, allegedly people I may or may not have known slash been used it to purchase things like 2CI and 5MEO MIPT and 2CT7 and 2CTE and all sorts of fun shogun chemicals over the internet. Wait, wait, wait, wait, wait, wait. Can you tell the lay woman what that is? There are different hallucinogens that a guy named Alexander Shulgin invented and tested on. He and his wife and wrote books about and they're pretty rad for the most part. Wait, how, how do they relate to mushrooms and or acid?

Well, some of them are fleneflamines, which I believe mushrooms are a fleneflamine too. So some of them actually are like some of them are kind of like synthetically similar to mushrooms. Some of them are very different. Like 2CI is like nothing else I've ever experienced. They're just chemicals that it's very visual in a way that like, it's visual in a way that like when you watched like how acid and stuff is depicted on TV, it's not actually like that. Acid isn't like the crazy visuals and stuff.

No, I've done acid a lot, but I'm asking like, is it more like? That's what I'm explaining. So you know how like when TV shows are trying to depict an acid trip, they always show like all these psychedelic weird colors and strange visual that like you don't really get on acid. Like I don't have a lot of open-eyed massive hallucinations of things. That can happen on enough 2CI. Like it's really potent visual hallucinations. It's rad.

I love 2CI. And if you mix 2CI and how long does the high last? How long does the high last? Seven to eight hours. So like a good mushroom trip or acid trip, essentially. Longer than mushrooms, a little shorter than acid. Mushrooms always always take forever to get out my system. I think everybody is different, but yeah.

Yeah. Usually mushrooms for me are about three or four hours. Wow. Okay. Yeah. Lucky. Yeah. But yeah, I love it.

Anyway, I have a lot of fondness for e-gold because it brought a lot of wonderful drugs into my life as a kid. Now that said, it didn't last very long. It was actually shut down by the government in 2009 because the people running it had stopped getting the kind of licenses you need to transmit to be like to transmit money over the internet, basically. Again, it's this like they didn't believe they needed those licenses from the government and the government said, well, yeah, you do. So Liberty Reserve, which operated from 2006 to 2013, was another attempt to make it possible

for people to buy things anonymously over the internet. The goal of all this anonymity was for some people just a matter of principle. They weren't actually doing anything sketchy. They just didn't want the government to know what they were doing. That's my whole vibe, man. Yeah, I get that. I do. That said, for a lot of folks, it was a matter of wanting to buy illegal firearms, child pornography, or drugs, sometimes all three.

Liberty Reserve was shut down when it's founder. Okay, just the last one for me. Wow, let's not put child pornography into the drugs cat. That's not fair. But it is one of the things you would use untraceable money for. Like those are kind of the big three. Okay, I hear you, but I want you to go like... I'm not drawing a moral equivalence between them.

I know you're not, but I just don't want them to be in the same sentence. I'm offended as someone that just wants to have a good trip. There's someone that wants to jack off to children. That is not the same vibe. No, and even the Silk Road guy was like, well, I'm not going to let people sell child porn on the Silk Road. You can hire Hitman to murder people, but we have standards. We have boundaries, thank you.

You can murder full-on adults, full-ass adults, but when it comes to babies, no. You save that for Robert and Sophia. Yeah, I mean, but we won't molest them, just kill them. Just kill them, obviously. We're not monsters. We're not monsters. Yeah, absolutely. So Liberty Reserve was shut down when its founder was imprisoned for 20 years for money laundering.

Now, there's more to crypto history than that, but most of what you need to know after this point is that in 2007, Satoshi Nakamoto started working on Bitcoin. He was still following David Chowm's dream of a perfectly anonymous, yet trustless digital currency. Bitcoin was also supposed to be anonymous, or was supposed to be anonymous. That's the reputation it has, too. People say, oh, Bitcoin transactions are anonymous.

They're not really, and in fact, because of the blockchain, they're often very close to the opposite of anonymous. Every transaction is registered indelibly forever on an immutable chain. So one of the things about this is that there is a way to do totally anonymous Bitcoin transactions. Number one, if you mind it on your own computer and get a Bitcoin, and you are reasonably secure with your machine, then people would see the transaction where it was going,

but they wouldn't necessarily know that it was your Bitcoin. Also, some people buy Bitcoin in person, like just hand someone cash for a hard drive with Bitcoin on it. That's fairly anonymous, but the transaction itself is not anonymous. It's literally the opposite. Everyone, including the feds, can see where Bitcoin is going. So if they know somebody is a drug dealer or doing something else illegal and they see Bitcoin coming to him

and they can see that you owned that Bitcoin, then they know that you were paying that person. Now, the other thing is that this is again part of the big selling point, that the blockchain is immutable, that everyone can see every transaction. That is what makes it trustless, but it's actually not true that the blockchain is immutable. The blockchain is decentralized. So it's basically what makes it supposedly immutable is that all of the different computers with the blockchain on it are constantly sharing the blockchains,

and as long as most of them agree, that's the blockchain. So theoretically, if you have enough computers operating to make up more than 51% of the computers with the blockchain on it, kind of doing this decentralized sharing of the blockchain, you could change the blockchain. And there are some groups with potentially the power to do this. I mean, maybe it's happened because there are these now big mining consortiums that operate hundreds of thousands of computers mining Bitcoin. And theoretically, they could actually modify the blockchain

if they got together enough people with enough of a goal to do that. But wait, modify to what? To alter, I don't know, to either remove transactions or you could fuck around in a bunch of different ways. If you had 51% of the computers that were kind of involved in this big distributed conversation, there's all sorts of shit you could get up to. But yeah, this is a little more detailed than is necessary to understand the grift nature of crypto. Are you saying that because my eyes glazed over?

Because my eyes glaze over when I get too much into the technical stuff. Or because Sophie literally fell asleep and I could just read her hat and nothing else. Oh cool. Oh yeah, she did fall asleep, huh? Sophie, get up. We're talking about the blockchain. You must have said the word blockchain in the last paragraph 52 times. Look, I'm as frustrated by this as you are.

But I'm setting up all this background because I want everyone to understand what an enormous, ridiculous grift that cryptocurrency has become since it got very popular. Because this story is funny. While hashing out more technical details, I want to talk about Mt. Gox now. But first, you got to take an abrick, buddy. No, I refuse to. You have to because I'll use one of my new fucking knives on you. Yeah, no money for you.

I don't want to get stabbed by you. Good luck motherfucker, I got at least five of them. Alright, well, you know who won't? Stab you. Stab you. These goods and services, boy. Spoilers, they might. We're also bringing you cinematic, historical recreations of moments left out of your history books.

I'm Smedley Butler and I got a lot to say. For one, my personal history is raw, inspiring and mind-blowing. And for another, do we get the mattresses after we do the ads or do we just have to do the ads? I'm Lance Bass and you may know me from a little band called NSYNC. What you may not know is that when I was 23, I traveled to Moscow to train to become the youngest person to go to space. And when I was there, as you can imagine, I heard some pretty wild stories. But there was this one that really stuck with me. About a Soviet astronaut who found himself stuck in space with no country to bring him down.

It's 1991 and that man, Sergei Krekalev, is floating in orbit when he gets a message that down on Earth, his beloved country, the Soviet Union, is falling apart. And now he's left defending the Union's last outpost. This is the crazy story of the 313 days he spent in space. 313 days that changed the world. Listen to the last Soviet on the iHeartRadio app, Apple Podcast, or wherever you get your podcasts. What if I told you that much of the forensic science you see on shows like CSI isn't based on actual science? The problem with forensic science in the criminal legal system today is that it's an awful lot of forensic and not an awful lot of science. And the wrongly convicted pay a horrific price.

Two death sentences and a life without parole. My youngest, I was incarcerated two days after her first birthday. I'm Molly Herman. Join me as we put forensic science on trial to discover what happens when a match isn't a match and when there's no science in CSI. How many people have to be wrongly convicted before they realize that this stuff's all bogus? It's all made up. Listen to CSI on trial on the iHeartRadio app, Apple Podcast, or wherever you get your podcasts. Alright, we're back and we're telling the tale of Mt. Gox. Have you heard of Mt. Gox? Probably not, but... What do you mean? Everything you say sounds like a bit. I'm just letting you know.

Mt. Gox was the first big Bitcoin bank. Mountain Docs, sorry. Mt. Gox, it was the first big Bitcoin bank. So at one point like a huge chunk of the Bitcoin being actively traded, I think a majority of it was like going through Mt. Gox. It was the big bank in the Bitcoin world, which obviously the whole thing is that like you were not going to need a bank, but the problem is that without a bank, again, if you like mistype an address, your Bitcoin just disappears forever. Like you have no security whatsoever. You have no safety. There's no way to like actually protect your money in any meaningful way.

It can be hacked or stolen from you. So people started using exchanges, which are basically banks, because they wanted the security that banks get, which is very funny because the whole idea was like, well, we have to get away from, you know, horrible banks and then like we wound up reinventing banks. But because it's crypto, they wound up reinventing banks, but much worse. So Mt. Gox is the first big Bitcoin bank and its origin is hilarious. In 2007, a nerd named Jed McCaleb purchased the domain Mt. GoxMTGOX.com for his Magic the Gathering card trading website. Mt. Gox stood for Magic the Gathering online exchange. In fact, it was not called Mt. Gox at all until Magic the Gathering proved less profitable than Jed had hoped.

And so he basically stopped running the website. But then in 2010, there's a bunch of articles on Bitcoin. This is kind of the first big boom period that Bitcoin has. So he reads a bunch of these articles and he's like, oh, I bet I could make a bunch of money off Bitcoin. And his girlfriend likes the name of the URL of the website he has. So he just decides to relaunch his Magic the Gathering online exchange as Mt. Gox, a Bitcoin exchange. In the hope that like, oh, that sounds like authoritative enough. I remember like on something awful following this as a kid and people being like when they realized the giant Bitcoin bank was named after Magic the Gathering online exchange.

Like, oh, what the fuck are you people doing? They're like, wait a minute, this takes a little bit of the legitimacy out of this money. Oh, yeah. And it's not legitimate at all, it turns out. So it was not long before Mt. Gox was the place to trade Bitcoin. It is highly possible that no other part of the story would have occurred without Mt. Gox. Because, again, Bitcoin's a giant pain in the ass to do on your own. This whole like, have no bank just peer to peer with no middleman is a huge pain in the ass that's super dangerous and like frustrating and annoying for people to do. And one of the things that's annoying about it is so all of the transactions that Bitcoin has ever been involved in are stored on this ledger, right?

The blockchain. Well, as time goes on, that means it gets bigger, right? Like, by definition, the blockchain is always getting longer. And so by like 2011 or 2012, it's like 100 something gigabytes, which you have to keep on your computer if you want to do the transaction directly without a bank. I know it's such a pain in the ass. Everything about it is like your phone starts running out of room and you're just trying to take photos. Yeah, like a meaningful occasion. And then you're like, no. And then you have to do that.

But for your money, I don't know what's more important. You know, my Nana's birthday or these margaritas with the girls by Nana. Yeah, the genius of cryptocurrency is that it's provided us all with a way to take that feeling you get when your phone doesn't have space to take it. It doesn't have space to take more pictures and apply it to spending money. Oh, I don't like this. It makes me feel as irresponsible about money as I have always been. Yeah. So Mount Gox becomes huge and it allows for Bitcoin to expand massively because now it's not a pain in the ass.

People can basically trade it like a cut. It also kind of allows commodity trading with Bitcoin, right? Mount Gox is where a lot of that starts because before it had been so decentralized. Now there's this exchange. You can see the price of Bitcoin and like how it changes. People can short sell and whatnot. It allows Bitcoin to expand massively. Trade it like Mount Gox?

Trade it like Mount Gox? Yeah. Does the tuna drop it like it's hot? Well, that is where the story's going actually because the spoilers. Mount Gox drops all of the Bitcoin that it's storing. Drop it like Mount Gox? Drop it like Mount Gox? Mount Gox is a Bitcoin or the price of Bitcoin grows steadily over the next year or so.

And McKaleb was smart enough to realize after a couple of years of this that the platform had become something much more than just a hobby. And that he was doing like, again, this starts as like, oh, Bitcoin's neat. Like, let's see if I can set up an exchange to trade it. And very quickly he's dealing with like millions and then like tens of millions of dollars. And it's basically like kind of unlicensed trading securities and operating a bank, which is illegal. So McKaleb being this market is like, I should probably get the fuck out of this. This seems like it could be a problem for me. And I maybe didn't entirely anticipate what was going to happen here.

Now, he also had a problem in that tens of thousands of Bitcoin had gone missing or been stolen from Mount Gox. And he hadn't told anybody. So he was basically like using new funds that were brought in to pay people out that had had the stolen Bitcoins in the hopes that nobody would notice it. Yes, the classic pyramid scheme. It is a pyramid scheme. Like that keeps happening. It always goes well. Please ask Luloro.

And McKaleb is a really sketchy guy. I can't say that he was like actually had stolen those. But like, I don't think we really know what happened to those Bitcoin. No one knows if these Bitcoins fell off from the back of a truck. But what we do know is whoops. So the same year that happens, he sells Mount Gox to a guy named Mark Carpeliz. And he doesn't tell him until the sales done. Oh, yeah, like 60,000 Bitcoin are missing.

You got to keep playing this like shell game to hide that from everybody. Heads up. Got to drop it like it's hot. Mark Gox. Now, Mark Carpeliz is also a shady motherfucker. He'd been convicted of fraud himself a couple of years earlier. So like, again, none of these victims are particularly sympathetic people either. But Carpeliz, it's a bad deal for him.

And so by the time he becomes aware of the fact that a lot of the Bitcoin the bank had been holding had been stolen, he basically agreed to assume all liability for this. As he continued to run Mount Gox, it's very funny. It's almost like buying a cruise ship for your crypto nation. And then realizing, oh, fuck, a lot is involved with running a cruise ship. And I should not know how to do it. It's hard to be a bank. And as he's running Mount Gox, not only is he having to deal with like the fact that 60,000 Bitcoin are missing,

that he's trying to like cover in a variety of ways, he keeps getting hacked. The bank keeps getting hacked and more Bitcoin keeps getting stolen because of like errors in the coding and stuff. People are just siphoning thousands and thousands of Bitcoin. So when he realized like tens of thousands of more Bitcoin had been stolen, he panics. And he takes the bank's assets offline and he puts them into what are called cold wallets. So a hot wallet is a crypto wallet that's online, right? And that means you can use it anytime you want to trade the money. But it also means that like a hacker could potentially get it.

And if they get your wallet, they just have it and there's no way for you to get it back. It's just gone forever. Cold wallets are just like basically just storing the files that are the cryptocurrency offline and something not connected to the internet, which is obviously the safest way to store it. But this again leads to this because he's unwilling to take any of these cold wallets and put them back online. Leads to this Ponzi scheme situation where like he's trying to bring in new money as quickly as he can to pay out the old money. So nobody notices that huge amounts of Bitcoin have been hacked. The other problem is that I think when the hack first happened, it was like tens of thousands of dollars worth of Bitcoin.

But the price of Bitcoin increases so much so that eventually it goes from like, oh, we're short like a hundred thousand or a couple hundred thousand dollars to like, we're short hundreds of millions of dollars. Like the problem expands exponentially over time. Because every time the price of Bitcoin increases, he's in the hole for more money. Hot wallet that you didn't see. It's got a temperature of 103. So this is a bad situation.

And for like the last couple of years he's running Mountain Gox, the bank is basically bankrupt and he's just like keeping it alive with nothing but lies. So I'm going to quote from a write-up in the next web here. On February 4th, 2014, Coindesk held a poll to find out how many Mountain Gox users had experienced withdrawal issues. In some cases, users still hadn't received their funds even weeks after they had requested withdrawal, which is great, way better than a bank to ask to withdraw your money and not be allowed to for weeks because it all got stolen.

A Bitcoin talk form thread amassed over three... Chase could never. Chase could never. All those banks will do is destroy the entire global economy by gambling on real estate. But you can't get your money any time you want. Please don't take us making fun of how dumb Bitcoin banks are. As any endorsement of Chase or any bank. Actual banks are dumb.

It's just a marker of how dumb the crypto banks are that they're even dumber than regular banks. Although obviously less toxic because when Mountain Gox collapses, spoilers, it does not sink the entire global economy and leave tens of thousands of people homeless. So that's good. Good stuff. On February 7th, 2014, Mountain Gox canceled all Bitcoin trading, froze accounts, and took a step back to take stock of what was actually going on. Ten days later, the exchange published a statement.

It claimed it had rectified the situation and that it was now on course to correct customer losses and resume trade. But by the end of the month, Mark Carpellers had stepped down from his role at the Bitcoin Foundation when the firm's fate was sealed. It disclosed over 740,000 of users Bitcoin, $2.9 billion in today's value, had been stolen in a hack that it claimed had been ongoing for years. At the time, that amount was valued at around half a billion dollars. On February 28th, 2014, the exchange accepted its fate and filed for bankruptcy in Tokyo. It would also file for bankruptcy in the US later in March.

Now, Bitcoin, again, had kind of sailed in this legal gray area, hadn't gotten a huge amount of government attention. That changes because as silly as crypto is to people in the Fed or whatever, when half a billion dollars goes missing, law enforcement's going to be like, well, okay, wait a second here. What happened here? I'm just picturing a lot of costs being like, ugh. Yeah.

So this creates a problem. I will look into it. Yeah. And there's after 18 months of lawsuits and attempted courts try to restructure the bank to get people some of their money, Carpelas has eventually arrested on embezzlement charges in August of 2015. Authorities claim that he manipulated Mt. Gox's computer programs in order to alter its balance sheet to artificially increase funds in one of its accounts.

So his embezzlement was not him stealing money from Mt. Gox. It was like lying about the money that was there in order to deal with the fact that there's this massive hole in it. Meanwhile, the founder of Mt. Gox has gone on to create a couple new different kinds of cryptocurrency and continues to do that side of the grift. It's very funny. Can I please find out what the names of the currency are? Because with Mt. Gox is a starting point.

They're forgettable. I'm just excited to see where it goes. They're forgettable, to be honest. Are they like the 90s names of like e-cash or did you cash or whatever the fuck? Like coin, whatever, I don't know. They're not very exciting. I can find them for you in a little bit if you like. Okay.

If they're not good, I trust you. In the end, Mt. Gox lost about 6% of all Bitcoin in existence at the time. Again, imagine if a bank disappeared 6% of the world's money supply. Like, it's very funny. Some of it was later recovered, but more scandals followed. There have been other exchanges. There was one exchange that had a map because they keep getting hacked. There was one exchange that was based on an exchange that had initially been coded by a 16-year-old Chinese kid.

People liked it because it had a good user interface, but it was really bad code. It was never meant to deal with hundreds of millions of dollars in transactions, but that's what happened. There were a bunch of exploits and hackers stole tens of thousands of Bitcoin and made away with millions. What that exchange did was tell everybody, hey, so that we can make whole the rich people who were robbed, we're taking 37% of everybody's bank account. You just have to accept it. They're all horrible grifts, like all of these fucking exchanges. Some of them have gotten a bit better now.

If you're being totally fair, you could be like, well, yeah, all of the early Bitcoin exchanges and crypto exchanges were giant horrible grifts, but look at what banks were like in the 1880s, where they would just run out of their client's money and everybody would be fucked and there would be runs on the bank. It's like, yeah, that is fair. The problem is, to what benefit are you recreating the financial system and all of the problems inherent in creating an entirely new financial system? I haven't found anyone who's actually been able to give a thing that's good that they're doing. It'd be sick if anybody did. In 2015, a new cryptocurrency, Ethereum, is released. Ethereum is much more advanced than Bitcoin and it can handle more transactions. It was made almost a decade later, so there's a lot of things that about Ethereum are smarter. It's main claim to fame, which are called smart contracts.

A smart contract is basically a program that is stored on the blockchain that executes when you do a transaction. It's like a program that you store on the blockchain, so it can't be changed or altered. The idea behind this is that you could use these to make perfectly equitable contracts. One of the marketing terms is like, hey, imagine if a musician could actually hold a record company accountable to the contract they signed, because it's immutable and it's on the blockchain, everybody can see it. The problem is that, number one, contracts are only as good as their coding. So if they're coded wrong, then the whole thing could be a disaster. The other thing is that the problem with inequitable contracts isn't that they're hidden.

It's that the people who write contracts are able to have lawyers that can write them in ways to fuck people over and you maybe don't understand it. And there's no reason why Ethereum smart contracts would suddenly render someone immune to a record company having more resources to figure out how to fuck people over on a contract. It just doesn't make a whole lot of sense. The other problem is that as you know in the entertainment industry, often you have a contract and then you have to renegotiate and change it later. And because it's immutably on the blockchain, that's kind of hard to do with smart contracts. They're not very smart is the problem. You could argue that like an agreement you make with human beings that a company you work for and have a contract for is much smarter because you can go to them and say like, hey, actually, I want to change this part of my contract.

Can we alter that and then sign a new contract? Which I've done. I know a lot of people who have. Not that like there aren't horrible, like abusive contracts that's constant, but like it is. I don't think the way Ether is trying to do it is any smarter. And obviously, most of what smart contracts have been used to do is create automatic Ponzi schemes. And like Ponzi schemes that execute automatically is like matters of code. There's a ton of different Ponzi's.

And in fact, like people knowingly get involved in Ponzi schemes in the crypto world in the understanding that like, well, if I'm early enough, then I'll make some money off. Yeah, exactly. As long as I'm not the one getting fucked over and I'm fucking someone else over, that's the American way. Yep. Yep. And there's a bunch of like, there have been cases with these smart contracts where like the coding of the contract is bad. And it creates an opportunity because there's a hole in the coding for like hackers to steal millions and millions of Ether or whatever. And this has happened a couple of times. And when it's happened in like influential people, like people who had helped make Ethereum like lost money, they actually were able to create correct those errors. Like it's the thing I said where if you have like a high enough amount of the processing power, you can alter the blockchain basically.

Shit like that has been done when like the whales lose money. It's just not going to be done if you lose all your money because you're nobody, which is cool. So you're recreating the part of the financial system wherein the rich make all the rules and get to change the rules if they lose money, which is also fun. Now, you'll note that I have not talked a lot about the environmental consequences of cryptocurrency. We'll talk about that a bit. But even without that, like if you separate the environmental consequences, it's just all such a giant obvious fucking scam. And to make that point, I want to talk about the case of Bitcoin Savings and Trust, which was created by a guy who went online by a name inspired by a Jimmy Buffett song. Pirate at 40. So this guy who's creating Bitcoin Savings and Trust identifies himself as a pirate, which is going to be meaningful in a minute.

So Pirate at 40 promised huge returns. That doesn't even look good on Johnny Depp. Get out of here. No, not anymore for sure. He promised huge returns on people's investments and he collected as much as half a million Bitcoin worth $5.6 million at the time and worth like all of the money in the world now. Any reasonable investor would have known that like the rate of return Pirate at 40 was promising marked him out as a scammer. But this was Bitcoin and people didn't think that way. There were folks who called him off online and like forums and stuff and they were downvoted essentially and lost online clout in the community for being negative about what was obviously such a great investment opportunity. Why are you being negative about crypto, bro? Like we don't need that kind of thinking here.

In the end, this very obvious Ponzi scheme wound up in control of 7% of all Bitcoin in circulation at the time and it was a giant scam. Pirate at 40 like disappeared with everybody's fucking money. Now he was caught in this case because again, these people are now committing financial crimes large enough for like to be paid attention to and some of the money was returned. But this was just the start of what would prove to be a long chain of Bitcoin crimes and incompetence. BitOmat at one time, the third largest exchange for Bitcoin existed for months before it was revealed that they had kept the site's whole wallet file, which is all of everybody's money on an Amazon Web Services cloud file that did not have a backup and was set to ephemeral. So if it was restarted, if the servers were restarted, the wallet was deleted and everybody's money disappeared forever, which is exactly what happened in July of 2011. No, I would be so mad. My bank forgot to have a backup of our money.

Sorry guys. Oh my God. Bitcoinica was the project of a 16 year old who was pretty good at coding and tried to make an exchange. It collapsed in 2012 without any database backups. All its remaining funds disappeared after a series of hacks due to the fact that the admins used the same password for Bitcoinica that they had used for Mt. Gox, which had been hacked months earlier revealing the password and allowing hackers to steal everything. This is so fucking stupid. Why would you have a teenager do this? Well, and this Bitcoinica, which collapses, the code that was made by this teenager for it, was then used by that other exchange, the one I told you about that got robbed and took 37% of everybody's money.

It's such stupid fucking bullshit. No one's learning anything. It's such stupid fucking bullshit. And you know what else is stupid fucking bullshit, Sophia? These goods and services. No, NFTs. And we're going to talk about NFTs in part two of this episode, but for right now, I want to talk about something that's not bullshit, Sophia. Your plugables.

Wow. Thank you so much. You're welcome so much. You can find me on Twitter and Instagram. Find her on Twitter. On Instagram. The Sophia. IYA. IYA.

And you can listen to my two podcasts. Private parts unknown about love and sex around the world and 420 Day Fiancé with Miles Gray, where we do stoned recaps of 90 Day Fiancé. Hell yeah. Hell yeah. And you can find me on bitcoin.scam where I am just send me $350 and if everybody does that, I will give you guys Robert coin. Wow. Great name. Exists in your hearts. So no exchange necessary.

You don't have to have an exchange. It's in your heart. You just know you send me 350 bucks. You've got a Robert coin. And then I'm going to retire. I'm just going to go. That's the episode. That's the episode.

Alphabet Boys is a new podcast series that goes inside undercover investigations. In the first season, we're diving into an FBI investigation of the 2020 protests. It involves a cigar smoking mystery man who drives a silver hearse. And inside his hearse look like a lot of guns. But are federal agents catching bad guys or creating them? He was just waiting for me to set the date, the time, and then for sure he was trying to get it to happen. Listen to Alphabet Boys on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. No country to bring him down.

With the Soviet Union collapsing around him, he orbited the Earth for 313 days that changed the world. Listen to the last Soviet on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. Two death sentences in a life without parole. My youngest, I was incarcerated two days after her first birthday. Listen to CSI on trial on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts.