Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Simon Dixon: How Bank to the Future is Rethinking Finance

Episode Date: August 24, 2015

Ever since the financial system collapsed in 2007, the call for alternatives has grown louder. Bitcoin itself can be seen as such an alternative. Simon Dixon’s search for a way to put capitalism on a sounder financial footing began before Bitcoin with a focus on equity crowdfunding. Since then he has built Bank to the Future into an innovative crowdfunding business that takes an aggressive contrarian stance. He has also launched an investment fund focused on cryptocurrencies together with Max Keiser called Bitcoin Capital. He joined us for a fascinating discussion about the flaws of the banking system, Bitcoin and the search for alternatives. Note: Our sponsor Vaultoro is raising an equity crowdfunding round on Bank to the Future. Read about the details and invest here: Topics covered in this episode: Why capitalism is built on a broken banking system The problems Bitcoin solves The flawed ways banks approach blockchain technology How Bank to the Future is a contrarian bet on the financial system Bitcoin Capital, the fund he started with Max Keiser How Bitcoin Capital and BnkToTheFuture work together Episode links: Bitcoin Capital Tranche 2 'Bank to the Future' Book on Amazon Bitcoin Capital on the Keiser Report Simon Dixon TEDx Talk Money Creation in the Modern Economy Naked Capitalism This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/093

This episode of Epicenter Bitcoin is brought you by Ledger, makers of the Ledger Nano hardware wallet. Half piece of mind in knowing your private keys are protected by industry standard, physical security. Go to ledgerWallet.com to learn more, and use the offer code EB-09 at checkout to get 10% off your first order. And by Voltoro.com, the gold to Bitcoin exchange. Trade gold to Bitcoin instantly and securely, starting at just one minute. milligram. Go to Voltore.com to deposits some Bitcoin and start trading today.

Hi, welcome to Epicenter Bitcoin. The show, it talks about the technologies, projects, and startups driving decentralization and the global cryptocurrency revolution. My name is Sybessiqudu. And my name is Brian Kroviang Krain. We're here today with Simon Dixon. Many of you will have heard of Simon Dixon. He is the author of a book called Bank to the Future. He also is the founder of Bankto The Future.com, which is a sort of an alternative financial service company that likes to do things very differently. And he is the fund manager of Bitcoin Capital, which is associated with that. So we're excited to have him on here.

He's been doing some important project, actually. Also in the context of this podcast, because one of our sponsors is ShapeShift. And they've done, they've made some funds through Simon and his enterprises as well. recently. So Simon, thanks so much for coming on. Yeah, thanks for having me. Delighted to be here. So give us a little bit of background. How did you, first of all, get interested and involved in finance, and where did Bitcoin come in here? So, well, I was working in investment banking. I worked in corporate finance, floating companies on stock markets as part of the team. and I did a couple of years as a trader, a market maker.

And I left in 2006 to start, because I was really interested in sustainable finance, sustainable banking, and generally just running a business in general. And I started the first raft of the book called Bank to the Future at that point. And this is pre-Bitcoin, pre-crowdfunding, these concepts didn't exist then. And it was purely on how to drive a sustainable financial system and some of the economic truths that I wasn't taught at university when I did my economics masters and things like that. So that was really my first introduction. Now, as I wrote a couple more drafts of that book, Bitcoin came along.

And Bitcoin actually bottom up solved some of the problems that top. down I was saying need to be reformed by the government. And so that was my first introduction and I was invited to the first Bitcoin conference in Prague. And I spoke there with a gentleman called Max Kaiser who runs a show that talks about Bitcoin a lot. And I've been hooked ever since. Actually, I was quite skeptical to begin with. I just went there to really discuss the book and some of the things we were talking about.

it turns out that a lot of the properties of Bitcoin solve some of the major problems in the financial system, which we can go in more detail later. So what are the most, what are these problems that you saw Bitcoin solving? So the book is a long version of solving, discussing how you solve three problems. And the problems are as follows. The reason that we're in, you know, we're in the financial problems we are, is because we're trapped in a multi-decade Ponzi scheme, as it were, where in order to have an economy, you have to have more debt.

And the reason for that is simply because money is debt. And so in order to have a growing and stimulating economy, you have to have governments take on more debt, you have to have individuals take on more debt, you have to have corporations take on more debt, and then you get growth. And that's simply because economics has made an incorrect assumption. that assumption is that banks are intermediaries between borrowers and lenders, which is just not true. There's three properties that I talked about in the book that need to be solved. The first is, when you deposit your money with a bank, they become the legal owner of your money.

And so the people in Greece at the moment have experienced what happens when banks take your deposits. And in Cyprus, they experience what happens when they take their deposits. and every other country is about to experience what happens when banks take your deposits. The second property that needs to be solved is that when banks become the legal owner of your money, they can spend it as they wish. So what tends to happen is they spend it on things which help their shareholders and their bottom line, which aren't good for the economy. So banks were originally around to make loans for businesses.

businesses could then produce something, they create some jobs and they could repay the loan and it produced some value in society. What's evolved is that the loans have always moved to the least risky and the most profitable things to do. The most profitable things to do is financial speculation, which adds no value. A problem in Bitcoin, financial speculation adds very little value to the economy. And the second thing is it always goes for the least risky asset. asset class, which is always property.

And so the only reason that property prices continually increase is because it's bank's favorite asset cost. And therefore, you know, take an economy like the UK, which I know well, 40% of all the money that's yours that's spent goes to financial speculation. The other 40% goes to pushing up property prices. And only about 13% of the money that's created by banks goes to anything productive that creates jobs. And so which would have...

be a problem if it wasn't for the third problem, which is that banks are actually the creators of money. So people think economics assumes that a bank is an intermediary between a borrower and a lender. That's not actually true. A bank is actually the creator of money supply. So whenever you have a positive balance in your online banking, that's simply somebody else's debt and they created that money into existence at point of issuing a loan. And so 97% of every penny in the economy is created that way, which means that the only way to drive sustainability if you want an economy to grow is you have to have more debt. If you want less debt, then you have to have a depression. And that's why we have boom bust, boom bust, boom bust.

It's just simple economics that the science of economics has forgotten or not incorporated into their models. And so all of my focus at the time was how do you reform that top down what changes need to happen to make it illegal for banks to create money, to make it so people own their own money, and to make it so that money is directed in the interest of the economy rather than just the interest of the bank's balance sheet. And that's what the original book was about. And I hope this kind of segues into why Bitcoin is interesting, because when I first saw Bitcoin, I realized, hey, everybody owns their own money. So my money. stored on my phone, my iPad, my laptop, wherever it is, in a cold storage or at a bank,

if we wish. The money's directed person to person. So the way that the money flows is actually a reflection of society. And thirdly, Satoshi Nakamoto created an ingenious way of money being created, which is that the profits of money creation are distributed among the miners and the people that are actually adding value to the network and providing. its security. So if you think about it, money can only be created in a few ways. Either government's created, which is how notes are created. So the way that notes are created

is the way a £10 note in the UK, it costs 3p to create and £9.97 is profit for the government. So you sell a £10 note to a bank. Bank gives you £10 and that profit goes to tax revenues and it reduces the amount that consumers need to pay in tax. its scenery is how governments make money out and money creation. But that's only 3% of money. So when people talk about governments printing money like crazy, it's a lie. It's insignificant compared to banks created money.

Why do you think that this has gone, as you say, un-talked about by economists and economic theory? The first thing is that it's not untalked about anymore. So the Bank of England for the first time in his 360-odd-year history, just released a video for the first time explaining how money is created. And as a result, I believe, of Bitcoin where people are questioning the roots of money more than we've ever seen before and the financial crisis and a lot of circumstances. But in my experience, firstly, it's pure ignorance.

So, you know, a not-for-profit organization did a survey on all the MPs. I talk about the UK because I was there for so long. I don't live there anymore. but and of the 640-odd MPs, only four of them knew how money was created. They thought that they had all control over it, or the Bank of England did, or whatever, the central bank. And so there's a lot of ignorance there. And the two reasons, really.

Firstly, the academic institution simply made that assumption that banks are intermediaries between borrowers and lenders and created economic theories called multiplier effects and all sorts of stuff. And those theories have gone through to build the foundation of all economic science and economic thoughts. And all those models that we use to build to use our monetary policy, our fiscal policies and build our economy, are based upon these outdated concepts. And economists have been very resistant towards accepting that there's that money is important in their economic models, how money is created, which is the foundation of all the models, really. So there's that.

And there are economists out there, you know, doing some great work on this. Yeah, it's interesting. I mentioned that because I said the economics is an undergrad and I did amasses in economics and philosophy. So I spend a lot of time looking at sort of economic theory and where does it come from, how does it work? I focus on microeconomics, so decision making, utility theory, rational choice theory. But it's similar there.

I mean, the theories underlying economics, they're just disproven, right? There are countless experiments showing that people do not act this way and people do not make decisions this way. So it's interesting because you have this whole big science and research and models all based on something. that is just clearly wrong. And it's not really clear what the implications are for all the things built on top, but it's certainly not a good thing when the thing's underlying it just is wrong.

And kind of the main difference is that in microeconomics is built upon a theory of utility maximization that we all try to maximize our utility and we use equations in everyday life to figure out whether we take an action or don't take an action. But luckily, those theories are not really used in the by the corporations or by businesses. But on the macro scale, the assumption of how money

is created, which is incorrect on most models, is used to actually run our entire economy. It's how we determine our monetary policy. And it's actually whether we decide to bail out a bank or not based upon these actual theories. So it affects all of us in a major, major way. So economics has got a lot to answer for. Now, can we, extrapolate here and perhaps assume that this is not just a problem with banking, but that it expands and it actually is a problem with capitalism, perhaps. I would disagree totally. I believe the financial crisis was a banking problem. It wasn't a capitalism problem. Capitalism, in my opinion, is not the crisis. Yes, there's problems with it.

I believe it's one of the best ways of organizing structures. I think that, you know, the problem right now is that the capitalism is built upon an unsustainable banking system where the petrol, the fuel of capitalism is money and money's built upon a process whereby in order for it to be created it has to be created as debt and therefore that completely skews where money is allocated who can access capital and the size of certain organizations that have access to capital. So I believe that we have a banking problem and that then leads to a corporation problem because corporations have access to finance that small to medium size enterprises don't have access to and therefore you get skewing of the economy. And we've

never had capitalism to actually test. Now, if you look at countries like Iceland right now, they are testing capitalism in its true extent. They've sent the bankers to prison. They've They've sued them for counterfeiting their money supply when they issue loans. And they're looking at cryptocurrencies as a foundation for their economy. And they can do that on a scale of 160,000 people or whatever the population violence is. And it's one of the most innovative places in the world. And I believe you're going to see a real example, a first case study of capitalism and what it can actually produce. And then we can decide whether capitalism is a problem or not.

You know, we'll talk about Bitcoin in a second, but assuming Bitcoin wasn't here, do you see some ways of changing that? Personally, I'm from Switzerland originally, so there's actually a referendum right now that wants to prevent banks from creating money. I don't know if you're aware of that. But do you see some ways that the government would change or the financial system would change from within or maybe because of a crash or if we have a huge depression that then some change would come?

Yeah. The only way you will ever get the government to change is a complete meltdown. They have no appetite to change prior to any kind of meltdown. Unfortunately, necessity is the mother of all invention. banking and government are completely entrenched and no, all you've seen, and we've already seen an example of meltdown post the subprime crisis,

and we saw exactly what they will do. They'll create another central bank which puts together more control, they'll look at more control currencies and it will always be issued as debt. And then all they do is they kick the can down the road a little bit further, and they create projects like quantitative easing, which is a new form of creating money.

And what quantitative easing did is it said, well, let's allow the Bank of England to create money as debt and will allow the large corporations to borrow money at virtually 0% interest. And then what they did with that money is they ended up buying back their stocks, which created a property, not a property market bubble, a stock market bubble, a bond market bubble. and then the richest people, which just redistributes money to, then use that to buy more property,

which then restimulated the property market. So they chose the exact cause of the problem as the solution to the problem. And I believe they will do that forever because the brave person that goes into government and tries to exercise some of the power which they totally have to create money without issuing.

debt would be met with such massive ginormous resistance. And that's what we're seeing. So it just creates a brave case study like Iceland to stand up and do it. Let's take a short break so I can take you to Paris. I dropped into La Maison du Bitcoin, the House of Bitcoin, in the heart of Silicon Sontier, home to many startups, including Ledger. And I spoke with Eric Larchovek, Ledger's CEO, about what we can expect in the coming months. A lot of our customers are asking for solutions.

compatible with mobile using NFC or Bluetooth and we are working on that. In September we plan to release the ledger unplugged which is Java card NFC compatible. At the end of the year we will release the ledger ODT which is a hardware wallet with a screen, Bluetooth, NFC and the keyboard and also in September, November we are going to release the ledger HSM for enterprises. And finally, the ledger trustlet, which runs in the trusted execution environment, is almost available now in beta for mycelium and green address, and which will be released hopefully also in September. In the future, we really see ourselves as the leading company in securing all the Bitcoin solutions for customers, but also for enterprises.

We want to be the Cisco of the Bitcoin. So definitely look forward to exciting and innovative new ledger products to be released in the coming months. In the meantime, you can always count on the ledger nano to keep your Bitcoin safe. So don't delay in getting a secure set up today. Go to ledger wallet.com and use the offer code EB-09 to get 10% off your first order. And that offer code is valid until September 30th of 2015. We'd like to thank Ledger for their continued support of that percent of Bitcoin. Before you mentioned, Simon, the case of deposits when you give you,

money to the bank, it's actually the bank's money. And many will remember in Cyprus, right, when things went down in the end, some of the money that people had in the bank, I think, above a certain amount was just basically taken, stolen. And I think we can expect something similar, probably worse to happen in Greece. But you mentioned people are going to be experienced that all around the world, what do you think, where's this going? What can we expect? The way, if you model out the economics of our existing system, you only get a few results. The results that you have is a larger divide between rich and poor. You have larger consolidation of assets between ultra wealthy connected people and ultra wealthy connected institutions.

and with each bailout you move the bar in terms of the debt to the most indebted people you redistribute the debt to the taxpayer and that increases the rich poor divide in its infancy but eventually there comes a point where people will no longer lend to government because they don't have you know they just won't do it because of the interest rates that you know that come in the bond markets to that country. And that's, it's when people will no longer, because what happens is individuals need bailing out. And so the government comes up with a scheme

to allow you to buy your house, get you further into debt. But eventually they can't repay their interest because their mortgage becomes greater than their income. And so when wages are going down and their mortgage is going up, that's just skewing money towards the banking system. Eventually, people can't afford it. So the banking system has, some kind of collapse and correction.

And because all money is created by a bank and the bank is the economy, the government then bail it out and the government then go to a central bank and the central bank then bail out the government through quantitative easing or whatever it is. But eventually the financial engineering ends. And when that is, I've got no idea and how much more financial engineering they have. But eventually it does end because you can't take... And why does the end? Why can't the central bank keep doing that?

because you can't taper a Ponzi scheme. The money, the assets underneath this have to come from somewhere at some point. And there's only so poor you can make people. There's only so much debt you can get people in. There comes a point when people just default on their debt. And once everyone defaults on their debt, the entire system collapses.

Today's magic word is crash. CRASH. head over to let's stock bitcoin.com to sign in, enter the magic word, and claim your part of the listener reward. Let's step a little bit more into that, I think before we move on to Bitcoin. So, because actually we haven't talked about the Euro crisis on here. We don't talk a lot about sort of economics and the financial situation because, you know, we really focus on on Bitcoin, on the technology, on where this is all it's going. But I think it's interesting with you on here to spend a little bit of time on that.

So you said, you know, you don't know. when things are going to go wrong. But what do you expect? Because I remember in 2007, 2008, I was reading about this all the time, right? There's a blog that I love and perhaps you know it as well. And that can highly recommend anybody interested, which is called Naked Capitalism.

And the person is absolutely brilliant in that she really, really understands a lot of it. And she's been writing extensively about the Greek situation as well. So I was reading constantly then and I was sort of always expecting, oh, that obviously this wasn't solved, right? But cost of the financial crisis wasn't solved, right? It was just sort of tapered and said, oh, we'll push it further down. And it was like, oh, it's going to come back soon and it hasn't, right? It's sort of, it, we're quite a few years down. So do you think now is a time when, for example, in the EU,

and the Europe, things are starting to unravel? Things are starting to unravel, they've got a lot more tapering to do. So what you're seeing in Europe is the consolidation of a group of countries whose economics are very different, who all need their own currencies, whose interest rates and monetary policy for one country does not suit the country, the interest rates and monetary policy for another country, using the central banking system on a grand, grand scale through the European Central Bank, which is essentially Germany.

And if you look at the charts, essentially it's just been a massive redistribution of wealth from the smaller countries in Europe to Germany. And that's essentially what's happened with the European experiment. And so now you're seeing Greece fight with Germany, Germany as the banker, as it were, fighting and with Greece. And Greek just, they just need to ride off the debt, crash the bond markets. The pensioners are going to get hurt, unfortunately,

because they're the ones whose money, the banks are investing and the asset managers are investing. And they need to rebuild their own economy, and they need to rethink it from scratch. They don't need to build the same mistake again. And they can become the most financially innovative place in the world, much like we're seeing in Iceland. Okay, let's move on to Bitcoin.

Where does that come in? So we spent some time talking about government and macro and top-down and things that are quite scary for people to consider. On the flip side, we've got one of the most exciting times in history. And the reason today is so exciting is because a series of trends have all come together, whether that be social media,

whether that be the Internet, whether that be decentralized technology, It's really, really exciting times in the entrepreneurial space. So bottom up, entrepreneurs are creating amazing things because they're not just sitting back. And Bitcoin to me was, you know, we call it epicenter Bitcoin. It was the epicenter of financial innovation for me. It was something that I could never have dreamed of being created and it got created. and it worked and it's now become the largest supercomputer in the world

on a scale we've never seen before and it's just completely bucked the trend. So it's just such an exciting financial innovation to now say that yes, there's a lot wrong with Bitcoin, there's a lot strange about Bitcoin, there's a lot that many people don't understand and can't use, but we now have the rails to build financial innovation completely outside of the existing.

financial system. So that, you know, people in Greece, if only they were watching this podcast, they would have had their bitcoins. They'd be exchanging them for gold. They'd be using them on their Bitcoin debit card. They'd be sending them abroad. They'd have freedom, as it were. Yes, they, you know, have to accept some kind of volatility and lots of the things. But remember, the thing with Bitcoin is that now we have programmable money, a service like Bit Reserve can come along and take out volatility from the equation. Other entrepreneurs are coming along. So what I love about Bitcoin is that you don't have to lobby a government

and persuade massive vested interest to change things because it's being changed anyway at lightning speed. And applications are just being built. So whenever someone comes to us with a problem about what Bitcoin is, you can come along and you can find someone that's trying to solve that problem, interview them on this podcast, a community gets built around it, and the technology's built is rolled out and the problem solved. So every problem that you can think of is being solved

one step at a time, which is just such an incredible innovative environment and something so exciting. So if we project this out and let's say we're optimistic and things go right and Bitcoin doesn't run into serious problems, etc. Where do you see this going? I see a serious integration between the traditional financial system and the cryptocurrency, whatever we want to call it, blockchain ecosystem. We're already seeing that. Fortunately, the traditional system is on a path to however long it takes, there is an implosion. And we're going to see that on a scale because it's just going to get bigger with each crisis.

Which means that now, rather than everyone having to accept that their wealth might be wiped out at any point, they can start hedging their financial system. They can start hedging their personal portfolios. They're going to lose money. Bitcoin's a wild, crazy asset class. It does things very strangely. It doesn't work like a traditional currency. However, it will.

and I believe in the future what's going to happen is that many different things will work the same way that the blockchain actually works and the Bitcoin works. But in the future, thanks to innovations like crowdfunding, like peer-to-peer lending, like Bitcoin, what gets funded will reflect the values of society

rather than the appetite of governments and banks. So we talked about how money always goes into property because it's bank's favorite asset costs. Well, in the future, people controlling their own money means that they'll be directing flows. And what gets funded will be the reflection of what's on a transparent network and what people want. The second thing is that with money also being flowed

in the direction that people want it to go, the whole blockchain concept means that in the future, people will be using currencies and asset classes, that reflect their values. So rather than if you use Bitcoin, that will be a value choice. If you use US dollars, that will be a value choice. If you use some obscure coin that's being used just for charity, that will be a values choice.

So I think that in the future, finance is going to get more complicated. There's going to be lots of different currencies, lots of different things going on. And the currencies and products that people use are going to be a reflection of their values. And that's really exciting because it brings more personal choice in. What are your thoughts on some of the banks now moving towards cryptocurrency and even announcing that they'll be issuing their own cryptocurrencies? I've got a bit of a love-hate relationship.

It's great for Bitcoin and the decentralized cryptocurrencies and blockchains. Because unfortunately, even though banks have committed crime for so long, the world still looks at the banks and trusts them and looks for them for validation. And so this year has been the year where every banker comes out and says, hate Bitcoin, love the blockchain. Let me re-translate that for you. What that means is that I thought that Bitcoin was some kind of crazy Ponzi scheme. I didn't get involved and I don't want to lose face.

So therefore, if I say I love the blockchain, then I can be involved. Is the translation of that, really. Now, banks getting involved, I think it's great because it adds validation to the technology. It helps people get involved more because they're large networks and people are all still using their banks and they trust them even though what's happened over the past. But at the same time, they're creating worse versions of what Bitcoin has already been created. So Citicoin comes out. Citicoin, you know, if you're a consumer and you're looking at, right, how am I going to use more? money? Am I going to use a network whereby I own my own money? It's not censored. I can send it

really easily, really fast, and I don't need to answer questions of everybody to that. Or am I going to use a coin where every transaction I make, they're going to ask me a ton of questions. And if they decide that they don't like what I'm doing with my money, they're going to take it and use some of the properties that we talked about, where they become the legal owner of your cryptocurrency, and they can direct it. If they don't like the way you're directing it, they can spend it as they wish.

And now they get involved in the money creation process. So I believe that it's a worst version of what's already been created. But I also think it's good for the sector, and blockchains can be used to solve more problems and more transparency layers to existing financial systems like securities. and security transfers. So yeah, it's a bit of a funny one because when you've been around from

early on, you have this kind of growing pain of being involved in a niche, being involved in what, you know, and then suddenly it actually gets where you want it to go. And you lose a bit of the attachment to the niche. And suddenly all the banks are getting involved, which I would hate for the end result of this entire financial revolution to be that we found. a cheaper way of banks committing crime and that could happen. Yeah. I mean, there is one thing relating to that is that, of course, you mentioned, you know,

people would either choose one or the other. There was the question of concern protection and ease of use. And if Bitcoin doesn't provide those things, then certainly people would choose the coin that the bank is issuing because, you know, people continue to trust banks even though the day continue to commit crimes, as you mentioned. So I want to ask one more question, and then we can move on to Bank to the Future. We had David Andolfato on this podcast. He's a VP of Research at the St. Louis Fed, and you may have heard he proposed the idea of a Fed coin,

where essentially a government would be issuing cryptocurrency under his idea of what this would look like. It would look very much like Bitcoin in the sense that it would be uncensored. with no KYC, and if you take that model, then essentially banks start losing their legitimacy because you can transfer money, you can transfer this Fed coin without having to go through a bank. Of course, banks are still useful for lending and things like that, but they seriously lose the legitimacy for payment transfer. What do you think of that idea?

I'm all up for financial innovation. I don't think it will work. So, you know, I guess they're just lending their brand to if it's what works exactly the same of Bitcoin, then that's a very interesting idea. But what does that actually mean? Does that mean that there's some kind of deposit insurance? Does it mean that it's not decentralized and there's a central point of failure that hackers can attack? What does it actually mean? So you've got to dig deeper into the details.

But if it's simply lending their brand to it, then. I think it's good choice. Well, actually, I think the idea that David talked about is a super revolutionary and an interesting idea, right? The idea that, oh, the government now, because you talked about, you know, money being debt, well, this wouldn't be debt, right? So all of a sudden, the central bank could issue in large-scale money and, you know, you wouldn't have to go to the banking system.

The question is, is the devil's in the detail. When the central banks issue it, is it mined into existence? Is it pre-mine? I think it would just be issue. Yeah, I think, well, to be quite frank, personally, I am very doubtful that this is going to happen, in particular because the way he talked about it and what he would like would be like an open system, that then people can build all kinds of applications on it. And, you know, there's no KIC and it works like Bitcoin in many ways, right?

and decentially validated and all. But governments are never going to go for that. I mean, if you look at Bill License and stuff, there's no way a Federal Reserve would create a cryptocurrency that they don't control, you know, down to the user level. So personally, I think it's an interesting concept.

It's actually a cool concept that would be good to have that as a competition to Bitcoin and all, but I don't think it's going to happen. I think if governments are going to be, to create a cryptocurrency, it is going to be more like you said, right, where they're going to do K by C you and everything and it's going to be a pain and it's going to be full of surveillance and things like that. And so all that's done is it's created less security for what was a very secure idea.

And it's also created, you know, more risk into the model. So, you know, regulators have got some interesting. challenges ahead. KYC and all these storing documents on a large scale that can be hacked and distributed is not in consumer protection. At the same time, and it makes it less secure. So the regulations that are meant to be used for consumer protection work in this system completely against what they're originally trying to achieve. So a bank to the future, we have to store details. We have to do KYC. It's part of our requirements in order to operate. But what that does is it just puts our consumers under an additional risk that we don't want

to put them under because they're deciding that consumer protection is not as important as their agenda for anti-money laundering and to protect crime. So what they're doing is they're weighing up. Is consumer protection more important to us or is anti-money laundering more important to us? And these are all decisions that the governments are going to have to make and decide. At the moment, they're deciding that control is more important than consumer protection and they're dressing it up as consumer protection in order to remain control. So, you know, it's very interesting digging deep into these policies and what they're looking to do. Yeah, so let's talk more about Bank to the Future, the company.

So how did you start it and what was the original idea? So Bank to the Future was really a bottom-up entrepreneurial venture that I co-founded with Blistics in 2012. And it was just simply a vehicle to get a lot of this innovation funded and moving. We wanted to create a place where businesses, funds, we could increase more liquidity. into the alternative finance sector. So there was things like equity crowdfunding that were coming around. It started in the UK.

We had to spend three years lobbying regulators just to allow that to exist. And then America copied it with the Jobs Act many years later. And so laws are being changed to facilitate this. The reason being is because getting more money into the small to medium size enterprise and sector has been top of the agenda for governments

as a recovery mechanism for the financial crisis. So therefore, it's been supported in many ways. Now Bitcoin and cryptocurrencies are being seen as a new sector with a billion pound of venture capital invested in, which is a job-creating sector, and therefore it's getting more support now. So in a sense, for the loss, what we wanted to create is an online investment platform

where people that were legally allowed to invest can invest in financial innovation and we've got lots of different products for example we raise finance for companies in the alternative finance space we've raised finance for exchanges we've raised finance for the crowdfunding platforms

we've raised finance for people creating alternative banking systems and the existing regulation says that we can only do that with a certain type of investor but all around the world rules are changing whereby more and more people can invest and they can invest smaller sums and so we're kind of in the middle of that. So the long answer to a short question is we're an online investment platform that allows qualifying investors to kind of hedge the situation, invest in financial

innovation and hopefully build a portfolio that would perform counter to how the traditional financial system would perform. So as the financial system gets worse, in theory, these investments should perform better. Oh, that's fascinating. I wasn't aware of that. Because I saw that, you know, back to the future, you guys, do equity crowdfunding and some different things. But I wasn't aware that you specifically look for projects that will do well when the sort

of general financial system will do badly. Yeah. So we do fintech and financial innovation only. And that's our niche, really. We're trying to drive forward, you know, many of the changes that we wanted to originally create with government in the original version of Bank to the future. But luckily, the bottom art reforms came along where equity, crowdfunding can exist, finance can be raised online, people can use cryptocurrencies to invest. People, you know, the internet allows for you to reach out to a global audience where it's compliant. and the blockchain is creating many, many interesting applications that are very disruptive

and can potentially be the next Googles and Facebooks in a decentralized way and produce hopefully similar returns for investors in a high-risk high-return environment. So you mentioned the job jack which is changing some of the rules around investing. Who can invest today like on Bank to the Future and in what kind of Are there restrictions still? So we focus on a niche audience. We've got a very niche investor base. So we've got people that really want to invest in FinTech, financial innovation.

They're wealthy people, they're high net worths, they're sophisticated investors. Each country has their own definition. So we've read literally 50 versions of financial securities acts and services act and spend lots and lots of money on legal fees, compliance. And we've created a structure whereby people around the world who are either accredited, professional, sophisticated, and each country has their own definition, can invest in these companies. And they can build a large portfolio. So they can invest as little as $1,000, which in some cases, sometimes is $500.

They can invest in any currency that's allowed to operate in a compliant way. they can invest in cryptos, they can invest how they wish, into companies, and they just have to make sure they're the right type of investor. And every time a regulator releases a new act, such as the Jobs Act, that increases the ability for people to invest, then our platform will adapt and make sure that only the correct people invest. Now, how do you filter those people? Because, I mean, so we both created accounts on Bank to the Future, and we were quite easily able to get into the platform because there's some sort of self-verification or self-checking.

Is there further verification of that investor? Yeah, so, you know, the people have to check the box, make sure they're the right things. We have quizzes to make sure they can demonstrate, they understand it. We have to do, you know, KYC requirements. We have to get documented evidence when people invest certain levels. And it also depends how they invest. So it's a very simple process on the front end for people to make sure they're going in the right direction. But we also have products which anyone can back.

For example, people might be simply backing like a Kickstarter project, something that they want to see. And anyone's allowed to do that. The only restrictions are where we can take payments from, but Bitcoin solves those as well. And so you can only get to the place where you're allowed to get to in a compliant way. And yeah, we have to comply with various other, all the financial services acts of the country where the person's resident. It's time for our work from our sponsors, Voltauro.com, the goal to Bitcoin Exchange. Now, we all know there's been no shortage of Bitcoin exchange scams and hacks in these recent years. And that's why when Philip and Josh,

the two brothers behind Voltau, decided to start that exchange in the wake of the Mount Gok's disaster, they wanted to do things differently. So they're really pushing the bar forward and innovating in terms of security, transparency, and auditability to ensure that customer funds are safe, secure, auditable, and so there's no there's no this Mount Gox stuff going on. It's all on the up and up. So if you've been listening to the podcast, of course, you know Voltura and perhaps you like Voltura and you like what they do, well, something new is happening, something really exciting.

is happening and that's, Voltaur is doing an equity crowdfunding campaign through Bank to the future of Simon Dixon, who of course you know as well by this point. So if you're interested, you now have the chance of actually owning some equity in a startup, which is sort of a new thing, equity crowdfunding and not just a startup, but a great Bitcoin startup, a great startup in the space, and you can even invest with Bitcoin. So if you're interested, check it out that's on Bank to the Future, so BNK2TheFuture.com and of course we'll put a link in the show notes. And we would like to thank Vultura for their support of Epicenter Bitcoin

and hope they're going to have a fantastic crowdfunding campaign. Tell us about some of the companies that have raised money through Bank of the Future. So we've got a number of different models. Some examples are the sponsor of this podcast, I believe, ShapeShift. So what we did is we, invested in shape shift because we also run a venture capital fund called Bitcoin Capital that raised finance through bank to the future. And we invested in shape shift.

And then we have the ability after we've invested to allow people to invest in the entity that we set up to hold those shares. So people can get exposure to the venture capital round. So what happens in most cases is people read CoinDesk, or they read something and they find out, hey, Shapeshift has raised $2 million from VCs. And there's no way of actually getting involved. Well, with our model, we're getting,

because we've got a very high profile in the blockchain cryptocurrency space, we get invited to most of those funding rounds. And so therefore, we can invest a block in those funding rounds and then after the fact give other investors that weren't necessarily a venture capitalist or an institution the ability to get involved if they're a qualifying investor. So that's what we did in the case of shape shift. In other circumstances, people are just raising finance direct.

So we had one company called crowd property, which I invested in personally as well. I should disclose. I invest in a lot of these companies myself. So I've got skin in the game as well. And simply, he was offering shares in taking the crowdfunding concept and applying that to the real estate property markets and allowing crowding people back into property as it were because everyone's been crowded out because of the

price has increased so much because banks are issuing loans for property as a main asset class which has pushed up the price and therefore you need a higher deposit but now you can crowd fund that together where you can get involved in real estate investing for as little as $500 or so. So if I can just rephrase So with Bitcoin Capital, what you did with ShapeShift So Bitcoin Capital is a VC fund You funded around in Shapeshift Then those shares, you then put them back onto

Bank to the Future so that essentially people are funding that VC round Yeah, so we negotiate with the company And we say that we'd like to have a reallocation whereby a certain amount of the allocation can be used for our investors on our platform. And if they don't get subscribed, then we'll underwrite it and we'll invest anyway. So that's one model. We've got other models.

You can direct, you know, a company can just raise finance without that model. And we also do where, for example, we run a TV show, which we've recorded our first 10 episodes called Crowd Factor. And the way Crowd Factor works is a show with Max Kaiser and myself. and an entrepreneur can come along and be interviewed live on the show. We'll invest, we won't invest, and it will go up on the platform, and if we invest, people can co-invest alongside us as a different direct investment or a special entity.

Or we can not invest, put it on the crowd, and the crowd can prove us wrong, and go out and invest in a really successful business that we missed. So think of Chart Tank or Dragon's Den, where the crowd gets to prove us wrong, if we don't invest and they get another opportunity. So, you know, we're using financial innovation to drive forward different models, produce new liquidity that didn't exist before,

and give the investors that are compliantly allowed to invest, the opportunity to invest where they didn't have it before. So we pick on capital, I just wanted to describe it in a little bit more detail, right? The way it works is that you used your own crowdfunding platform bank in the future to raise money for, a fund and that fund then works a lot like a VC fund, right? In that it invests in different startups specifically in the cryptocurrency space.

Actually, it does some other things too, right, besides investing in startups. But so it's, it's a, it's, it's a guess a little bit as if an individual had the opportunity to invest in a hedge fund that specifically focuses on the Bitcoin cryptocurrency space, which is of course an asset class that normal people don't have access to. So Bitcoin Capital was a problem that Max Kaiser and myself wanted to solve, which is whenever we go around the world, people ask.

Because I mean, I speak at a lot of the Bitcoin conferences and things like that, but that's not my favorite audience. My favorite audience is people that haven't used Bitcoin yet that are skeptical about Bitcoin. And I spend a lot of my time, you know, trying to convert people into the benefits of being involved in this sector and what it actually is. So I frequently get asked by professional investors, high net worth people. You know, hey, you know, that was interesting. That changed my perception of what it is, but how can I actually

get involved? And then we go down this whole thing of, well, you've got to open a wallet, and you've got to do this and you've got to do that. And then you've got to convert on an exchange that you don't trust and stuff like that. And, you know, the whole round. habit hole of because this is an early sector, it's not terribly easy for everyone to use yet. So Bitcoin Capital was a way for them to just simply put their Fiat money in and we run a venture capital fund that also pays them Bitcoin so that they can start using them. And so what we wanted to do is we wanted to use one third of the funds to invest in a process that we use.

So we have mining rigs in Iceland and we've got a very lean. model that's still profitable for mining bitcoins and alt coins and other coins and all the others, whatever's most profitable at the time. So what we do is we invest a third of their funds in that process and we give them daily dividends every day paid for in Bitcoin, which means that they accumulate their bitcoins in an environment where it's not like a traditional miner where they have to sell their bitcoins in order to pay for their electricity. These are longer term investors that want to accumulate their bitcoins and then use them for the first time and start getting involved in the sector. The other third we use to just hold positions in coins. Very few

coins. We've only got two positions at the moment in coins that we believe in. Can you share with those are? So we've invested in Bitcoin and Stark coin. We hold positions in those. Startcoin is a crowdfunding Alt coin, very high risk, very volatile coin, but it was designed specifically with the user case of being used for crowdfunding to help businesses get funded and to give people money. It was a pre-mine coin where we give people their first investment for free on the platform and it's used for crowdfunding. So we think that's an interesting case.

And we're looking at others, but we're very, you know, we're looking, we've been mostly investing in the longer term asset class of venture capital, which is we've got a portfolio of companies, we've invested in Bit Reserve, we've invested in ShapeShift, we've invested in Factum, we've invested in some others that we're due to announce as well. And so the idea of the fund was as follows. It gives you exposure to the growth of the Bitcoin and blockchain sector. It allows people to invest in a way that they're traditionally used to. They don't have to be a Bitcoin geek to get involved.

we'll pay you Bitcoins for as long as the mining process is profitable, they'll diminish over time, and at that point we might convert to some other type of coin, whatever it is, whatever's profitable, but eventually it won't be profitable. So you'll accumulate a position and you'll get short-term dividends while the long-term venture capital takes time to mature because that's normally a five-to-seven-year time frame in order for one of these companies to float on a stock market or float on what might be a Bitcoin blockchain market in the future or get bought by another company and the high-risk, high-return asset class than it is.

Now, with Bitcoin Capital, are you going to provide other services to the companies who invest in? I'm thinking, for instance, mentorship, things like that? So we're very active in the companies we invest in. Max Kaiser's involved and he's got a very, very, very large following in the sector. So where it's a good fit, you might be able to go on his show and discuss your business. Conflicts of interest aside, whatever, the right thing to do is there.

That's his decision and the TV channel's decision. But we are main niche is marketing. So we talk everywhere around the world about all the businesses we've invested in like we're doing right now. We have, you know, very, I have a large investor following Bank to the Future as a large investor base. We would like to combine it with crowdfunding purely so, you know, for example, Factor, they've now got 305 new investors that help them raise their million plus dollars on Bank to the Future. That's 300 investors that are all advocates, all looking to support, promote the business. And we talk about it wherever we go.

And we also co-invest with other larger investors. You might know some of the things like Barry Silbert and Pantera Capital we've co-invested with. Some of the people that most people are looking to try and get involved because we're all out there advocating and we're all looking to bring some added value and put these companies together as well to try and construct some joint ventures and share the market share that they're gaining. One thing I wanted to ask about, so with VC funds, there's this. typical sort of fund, it's definitely a fee structure, right, where the VC fund might take like 2% per year of the total funds and then 20%, for example, of all the profits being made. Now, I get this isn't a typical VC fund, right? It's quite different.

But how does that work in this case? So the way that we structure Bitcoin Capital is we brought a load of assets to the table when we first started, which is that we were running mining farms for a long time. We have the ability to scale up the mining very fast, very slow. And so therefore, we set it up as a traditional company rather than a pure fund where the investors are getting equity in the company, and the company is accumulating assets, and the value of those assets pays out dividends according to the allocation of the equity. So it's not run in a traditional fund way, because it's just not a traditional fund.

We have other products which are traditional funds. So we've got one like we launched what we call a stock coin mining back security that purely invest just as a fund in the mining process for start coins. So let me come in here because I saw you mentioned that 50% of the dividends are paid out to the investor. So does that mean of the initial funding that money that bought all those assets? Did you guys put in some of your own money? Or is those 50% sort of purely for the fund management and all the work you guys are doing and the traveling and the marketing and etc?

So yes, so yes, we put money in as well that those farms were set up in order to leverage those. So it's like a traditional company. The founders have set stuff up, got some assets in the company and then investors come in at a later stage. And so the way that it actually works with the fee structure is 25% goes to a company called Stock Coin Holdings, which is owned by one of the shareholders is Max Geiser, who's one of the co-founders of the fund. And myself, I get 25% as the fund manager. Okay, cool. And now another thing is that there was a Bitcoin Capital Fund number one, and then there's a fund number two that I think is currently raising money.

Can you talk about what's the difference here? How do those two work? There are two entities that do exactly the same thing. So when Tranch One is fully invested and it's accumulated all of its assets, then Tranche 2 will is a completely separate entity that invests in companies and does the same thing. So they own completely different assets

and they're completely separate entities. So many people have invested in both. Now what happens when, because this has been the case for some companies, when the funding threshold gets reached and even surpassed? With Bitcoin Capital, we're raising a maximum of $5 million in tranche 2. So we will close it. There's no overfunding. In other businesses on our platform, you can raise more than your initial goal.

And what that means is that you just end up selling more equity. you don't dilute investors. It just means that let's say you wanted to raise a million and you're offering 10% equity. If you end up raising 2 million, you're selling 20% of the company. And I suppose that gets defined in the terms when you first set up the funding on the site.

Yeah, so every investor as they come in and invests, they sign up to an agreement and the terms are all outlined on the pitch and each pitch has their own terms. But yeah, there's no... If we raise more on the platform, the investor is never going to get diluted. It means the company is selling more equity.

Fantastic. Well, Simon, I think we're sort of at the end of our show, but thanks so much for coming on and talking about it. It was very interesting. Of course, we will put links in the show notes to Bank to the Future, to your book, also to the site where the tranche too is being raised. So if people are interested in getting invested there, they can check that out. Okay, well, thank you very much for having me.

And I think what you guys are doing is really valuable work because this is a sector that needs so much education. I believe it's going to have such a big impact in the future. And any resource like this that's helping people get involved, access to information, I think it's just a tremendously important thing. So keep up the good work. And thanks for having me. Thank you. Well, thanks so much. Well, you know, speaking of all of Simon's nice praise, we have started this bribing contest,

which is if you leave an iTunes review, then we will send you a T-shirt like this. You just need to email us at show at www.com with a link to review. You can say as nice things as Simon or you can say evil things. You get a T-shirt in any case. Oh, so it's a draw, right? It's a draw, actually. Yeah, it's one, one teacher to read. So if hundreds of you rush to this opportunity, then, well, it will be a lot of reaches like Bitcoin mining is.

So thanks so much for joining us this week. So we put out new episodes of WebSend and Bitcoin every Monday. You can subscribe to show in iTunes, SoundCloud, or your favorite podcast app. And we're also, by the way, we're also on tune in now. Tuning. Yes. Yeah, I have heard of that. It's a new platform.

It's important to, I guess it's a. new thing. It's important to mention it, I've heard. Okay, so we're also on the new thing called tune-in. And of course, we're on the old thing where you can watch video called YouTube. And that's in YouTube.com slash Epson of Bitcoin. So thanks so much. And we look forward to being back next week.