On The Brink with Castle Island - Weekly Roundup 02/03/23 (Ordinals frenzy, Charlie Munger, Tether truthers are back) (EP.394)

Episode Date: February 3, 2023

Matt and Nic return for another week of news and deals. In this episode:  Nic's Proof of Reserves for Policymakers Charlie Munger attacks crypto The academic Tether truthers are back We unveil a new bad boy New allegations about Celsius surface The problem with exchange tokens How do you retire a token? The paradox of issuing tokens via an offshore foundation SBF is allegedly tampering with witnesses Did Sam really believe in EA? We review Mel Gibson's Apocalypto Were the Maya really that bad? What on earth is going on with Ordinals? Are Bitcoin NFTs a DOS attack?  A conflict of visions in Bitcoin reemerges  Matt keeps tearing his shirts VC dress codes  Content mentioned in this episode: Ark Invest Big Ideas 2023 Report Coin Metrics' report on MEV Dennis Porteaux, Illegitimate Bitcoin Transactions Nic Carter, Proof of Reserves for Policymakers

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentive Easing. You've printed a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And how do you get things happening over at Coin Metrics. Hiring some great people. Got very outstanding new products on the horizon. And I was told I had a conversation with some of the higher-ups at CM.

And they said that they did get you a jacket. Did that? But I'm not aware of. said jacket. Where is the jacket? I think it's in process. There was people listen to the podcast and there were some people that were thrown under the bus because of the lack of jackets for you. I hope that whoever is responsible for the jacket was disciplined. It's yeah, we're going to keep names out of it, but yeah. I'm waiting. I don't see a jacket. I'm cold. I'm chilly. A lot of good data over at coin metrics. A lot of

a lot to dig into. So coinmetrics.io, head on over there. You had a busy week. You had a new article, Proof reserves. It's a very, it's a passion project of yours. I was actually thinking myself this morning, what compels me to spend my time writing about this stuff? And I don't have an answer. Yeah, you're, you're literally obsessed with proving reserves of crypto assets. That's a literal obsession. Doesn't add any value to my life. It only causes me harm. Well, you don't, it saved a, saved a lot of personal trauma, right? You're not putting assets on venues that don't prove reserves. Well, that's not strictly true, actually. You prefer not to. I, yeah, I mean, look, not everyone does POR yet. Not everyone does it. Only 11 exchanges, as far as I can tell,

have done it. We'll link to this in our newsletter, but you wrote a policy, makers guide to proving reserves. Do you think any policy makers will actually read this? I'm going to send it to a couple and hope that they do. I think there's a good shot that like an emmer type would would read this. If you're listening, Tom, please read my article. I wrote it for you. Upvoted on LinkedIn. I don't know. It would be nice to have some bipartisan support for proving reserves, but I will take bipartisan support for just give us some spot market clarity.

just tell us if it's the SEC or the CFTC this whole industry can move on so did we talk about it though in the Texas legislation that was introduced I think we did last week right we did so Texas is doing proof of reserves as part of their whole state-wide legislation at least they'll consider I don't know if this bill will pass I hope it does so at least some folks in Texas are aware of POR so you know my target audience for this article is very, there's very few. Proving reserves is like a nice to have after spot market clarity for me. I'm not as passionate about it as you.

I just think, do you think about what really moves the needle here? I get that proof of reserves is great, but I think the market structure is going to evolve such that exchanges don't hold your assets in the first place. So maybe we're just talking about... Custodians would then do it. You know, like there's someone with someone has the reserves. Yeah, I think the custodians would prove reserves.

eventually, but really what we need is just the spot market to be overseen by a federal regulator as opposed to state by state. And we need the SEC to stop fighting with the CFTC over whether or not this is a jurisdictional issue on each side. So we just need over the top, bipartisan, comprehensive legislation starting with that issue. The White House doesn't seem to like crypto very much. Did you read their statement? Was it last week? I did. very tough i did i did i mean honestly you know we're kind of under broadside assault this week with charlie munger came he crawled out of his hole i mean charlie munger he's i mean charlie munger you got to hand it to the guy there's not a lot of things that could get me that pissed off if i was

close to a hundred years old but cryptocurrency for him is a trigger so he's 99 years old is that correct he's 99 that's my understanding and why is he writing op eds in the Wall Street Journal. How is that a fun activity for him at this point in his life? It's just, and he's writing upeds that, hey, we should be more like China. We should do this, this and this. He said that. Why would we try to be more like China in anything?

He said we didn't take a leaf out of China's book. Like, Charlie, what's going on? I don't know. I don't know. It's when you think about it from the perspective of if you're, you know, billionaire and you're sitting, you know, crypto is a pretty, pretty game-changing type of thing. You could see how it would be threatening. Oh, yeah. Do you remember those academics, Griffin and Shams from 2017? They're the ones that were basically the godfather of all the Tether Truthers. I do. I remember you went on a podcast

with Mike Green and you really discredited Griffins and Shams. It's like the worst academic article of all time, I think. I think it's worse than more. I think. Tied up. I think they said their original paper tee up what they said originally, now what they're saying. So this was an infamous paper for those who don't recall in 2017, basically saying it was published in the Journal of Finance, which is actually a good journal, which astonished me. I mean, it's malpractice, basically, for them to publish this thing. Basically, they said that Tether was used to support the price of Bitcoin. They did some insane regression analysis and decided.

that Tether was being strategically printed to, you know, cause the bull run in Bitcoin. And they looked at on-chain data and decided this supported their assertion. They didn't have any actual proof of this. It's just all inferential data mining, data science. Basically, the wrong people got, like, their hands on Stata or SPSS and decided to do some regressions and drew insane conclusions from it. So, of course, like, there was never any evidence. that, you know, Tether was like the cause of the bull run in 2017.

Right. Nor was there any that it was the cause of the bull run this time around. I mean, it's more like as the asset prices increase, balance sheets increase, and people need dollars to transact with. And, you know, there's just more dollars floating around the system. So it's not like you need a, there's no complicated explanation for why stable coins might. might increase as the crypto market cap increases. And so now they're back.

They had this big article on fortune. And they're basically claiming that they're vindicated and that it's happening again. So whenever the coin prices go up, they claim manipulation. What are they certain the coin prices go down? The price of, what's, what's Bitcoin up? Like 35% month over month here. It's, so what's happening is that the price of Bitcoin's going up and there's more demand for in this equation.

And so, of course, you know, they just see it. And they, when you're a hammer, everything looks like a nail. So this Fortune article says they proved manipulation in 2017. So basically for a no corner, they can't explain why the price of Bitcoin went up. So they have to find some other explanation, which is apparently Tether. So they purportedly proved in 2017 that, you know, Tether, caused the price of Bitcoin to go up, not like, you know, people buying Bitcoin or anything like that. It was all Tether. And they're back. They did a victory lap. And now they think that Bitcoin

rallying, you know, from roughly 16,000 to 23,000 is incredibly suspicious. And it's all, it's Tether's fault again. The whole thing's manipulation. There's one cause. You know, the market's not complex. Everything is monocausal. according to these people. Tough. I mean, one of these guys is a college professor. Yeah. I mean, the academic laundering of concepts that should at most be tweets or blog posts is insane.

So if you can write something up in an academic model and maybe even get it published, you can actually get the press to repeat your insane claims, which is DeVries's whole thing in terms of the Bitcoin energy debate. I mean, that tons of the Bitcoin Energy debate went that way, because the press seems to think that academia is more credible than just industry people saying stuff. And it's the same here. This paper got rebroadcast so many times because the press was desperate to find academics that would explain Bitcoin's price movement.

It's just that the explanations were insane. In other Castle Island content this week, Rhea sat down with Julian Neset, who's the co-founder of Argent. They talked about account abstraction and smart contract wallet. So that was a really enjoyable episode. I like that one. Yet another extremely big-brained episode from Ria. Just account abstraction. She gets into the really technical stuff.

It makes us look a lot better as a podcast. Yeah, I mean, it raises the intellectual caliber of this podcast, several donches. We're sitting over here talking about getting our ears blown out on flights and Tom Brady retiring, which we have to get to. But Ria is over there talking about M-EV and account abstraction. So I had the chance to interrogate some loyal members of Brink Nation this week, and I asked them what they liked about the podcast. That's good, a little user survey. Yeah, so I'm gathering feedback.

Okay. What did it hit me? They said they liked it when we just told stories and like messed around instead of actually talking about the substance. Well, that's what we do in slow news weeks. So I guess maybe we should just forget the deals in the news and just do like stories. I don't know if I have enough stories though to carry the day. I'm all stories out. I could go back to my heyday of stories, but I don't know.

I'm kind of boring these days. You had some good stuff in the early days of the podcast for sure. Yeah. Yeah, better stories a long time ago. But we could talk about football. We could talk about, you know, stuff like that. I just haven't watched enough football, but I could talk about pickleball. That's true.

You could definitely talk about pickleball. I'm getting good. You know, a lot of people are really doubting that in the space of a month, I can become a competitive pickleball player. I'd say I'm pretty good now. I definitely need to give this a shot. Maybe we should have a little tournament. We still have a vibrant community over at gm.xyz. So head over to gm.

gm.com slash on the brink if you want to talk about the podcast. That's where people hang out to talk. We are releasing a digital trinket. I know we've said it for some time now. We do plan on doing it. So should we get to the deals of the week? All right. We have a Castle Island deal, first up.

Groma, their company building at the intersection of real estate and blockchains. They raised 20 million in a series A led by us, Castle Island, with participation from Bantam Group, Achelon Launchpad, and Osbon Capital. Congrats to Groma. I'm really excited about this one. So I'm joining the board of Groma. Groma started by Seth Prebatch up here in Boston, formerly the founder of Level Up. So great team over there.

And we will be talking more about Groma, I'm sure, in the months to come. Next one up is Hypernative. This is a crypto security startup. They raised $9 million from Bold Start, Alchemy, Block Damon, CMT Digital, and Borderless. Then we've got Vest. They're a decentralized exchange building on Arbitrum. There is a seed from Jane Street and QCP. Next, we have Archimedes.

This is a defy lending and borrowing marketplace. They've raised 7.3 million from HackVC, uncorrelated, and others. Then we've got Sovereign Labs. Apparently, company focused on scaling technologies, is what it says here. They raise 7.4 million from Han Ventures. And the last one is Squid. This is a cross-chain liquidity program. They raised 3.5 million from our friends at North Island Ventures, distributed global fabric ventures, Chapter 1, and others. Squid. That's an interesting name. Do you ever use Squid as a derogatory put down when you're growing up? That was a big put down.

Really? Yeah. If you didn't like someone, you'd call them a squid. That must be a Boston Irish Catholic thing. It might be. Like it's definitely not someone from Boston that started this company. I've never I've actually I know a lot of slurs but that's not one yeah no you wouldn't want to be called a squid I'm not exactly sure what it means

someone who has no backbone maybe yeah someone who is I'll happily start to use it yeah no offense but I'm sure that it's a great cross-chain liquidity protocol it's very malleable so should we just start

with the FTX crime family I guess actually what I'd like like to start is I'd like to start with a new induction to the bad boys club. We didn't do it last week, so let's hit the music. Yeah. Boys, bad boys. What you're going to do? What you're going to do when they come for you? Bad boys, bad boys. What you're going to do? What you're going to do when they come for you?

All right. So this one, it's a miracle that it took us this long to get this to this particular individual. He's actually one of the baddest of boys. I can't believe that we never did this before, but Alex Machinsky, come on down and get your introductory membership to the bad boys club. Alex Machinsky, the founder of Celsius, somehow we haven't talked about this yet. But what happened this week was an independent examiner report came out as part of the bankruptcy filing for Celsius. It's 400 plus pages. I didn't read all of it.

There's some great tweet storms that summarized it. Ram Al-Lawalia over there at Lumina put out a great tweet storm about it. We'll put that in our newsletter as well. turns out Alex Machinsky, kind of what people were saying about him, turned out to be true. So he was manipulating the price of sell tokens, which was the native token to Celsius. And he cashed out to the tune of $68 million. And he's propping it up, according to the examiner's report, with customer funds. And he was trading the place like a prop shop, slinging around customer funds the whole time.

So looks like this thing was a Ponzi from way before the bankruptcy filing, early 2021, according to this. report. So I don't know how this doesn't end really poorly with criminal charges after reading a report like that. I don't know where else this goes. Yeah, this is a huge, huge mess. There's just no positive interpretation of this report at all. No. I mean, this, there's not, I mean, there's really not much to say. If this report is true, there's no way he doesn't go to jail for a long time. Alex Poshensky, you've been a very bad boy. I don't know. Yeah. I mean, just, I would say stop, but he's already stopped. So at least that's over.

For me, one of the red flags for Celsius was when I found out they were mining. So they'd spent a ton of money on mining. That didn't make a lot of sense because mining is not a yield per se. So it's a bet on Bitcoin, basically. I don't understand for the life of it. me why they got into mining even if they like they were running obviously Ponzi scheme but like even then it doesn't make sense let's say you're a bank and you take deposits and you lend them out and then you pay an interest rate so you it wouldn't make sense to be a miner because you're basically

just literally betting on the price of bitcoin that way so you can't promise a rate yeah why wouldn't you just go double long bitcoin on some derivatives exchange i don't understand why you'd have to go through the the hard path. It's just literally not, it's not the return profile, which is yield-like anyway. So I find that sketchy. Apparently what Salsis was doing was setting their rates,

not based on what was economical for them, but based on what competitors were doing. So they're in this race to the top, I guess, in terms of setting attractive rates. Definitely worked. A lot of retail flocked into it. For sure.

I mean, the red flag on these guys should have been the ICO. And in this examiner report, it says that the ICO, they lied about how much they raised. So they didn't actually raise the full amount that they targeted, but they just said they did. Yeah. I mean, the commonality with FTCS is clear. There's the token, which they're using as a type of collateral and effectively using to create non-dilutive financing mechanisms for themselves. I think maybe on a go-forward basis, if there is a lender in exchange with the native token,

I would be very skeptical of that thing. Yeah, I think a lot of these things should just be registered as securities. Yeah, if you're going to do an exchange token, just register it as a security. That's what it is, right? If it accrues cash flows. Yeah. I mean, if you want to give someone upside in your exchange, that's what equity is for. You can use equity.

I know it's not very exciting. But we already have a concept for that. Yeah, invented it 600 years ago. equity on chain is a good idea. Now, I understand this is really hard to do from a regulatory perspective right now, but that is where this industry is going, tokenized securities on chain. So that was always... That was always...

Greater transparency, like, that's what's happening. That was always my problem with FTT. I mean, and listen to this podcast. We talk about it many times. My problem was that FTT was behaving like the most junior equity. Right. And equity is already the most junior part of the capital stack, basically. And so, you know, now you have two different cap tables.

And you're promising a rev share to the token holders. And from the perspective of a shareholder, it's really weird that funds are being siphoned out of the corporate entity being distributed to the token holders. So basically when push came to shove, I always thought that the FTT, the token holders would be sacrificed and the shareholders benefit. it. So I always wondered why on earth you would hold FTT because you're just totally exposed. So I used to always say the, so I agree with that. The other thing I used to say about FTCs when people asked me about it was I, this FTT thing is going to be a huge problem if and when they try to go public because I would think that a securities regulator in the United States would take a hard look at that and say there's no disclosures here. How does this token actually work? It is a security

and that that would hamper FTX from actually getting public. But then people that actually understood the industry would actually come back and say, well, Voyager is public and they have that VGX token or whatever the hell that thing was. I guess it was public in Canada, but the point holds that there actually are some companies with tokens that are public.

But I don't know. The SEC hasn't really opined on one of these yet. And it's very hard to retire a token once it is outstanding. And it's in the hands of global. It's been done a couple times, but I'd say it's generally, it would be a big lift, I would think. Yeah, I mean, you could have to cash people out. You can't just do a token for equity swap because retail globally can't necessarily own your equity. You definitely can't do that.

You definitely can't do that. The one example I can think of is Iconomy. Do you remember them? Yeah, they did an ICO back in what, 16 or 17? Yeah, they're in early ICO, and then I think eventually they retired the tokens and did a swap of assorts into a Swiss corporate entity, I believe. I don't know of any other examples. I'd love to see this more. Speaking of ICOs, did you see this story about secret network? So there's a big squabble between the guy who started it, who's the guy behind Enigma, Guy Zisland, and then Tor Bear, who is running the foundation. and Bear has been accused of siphoning off money from the foundation.

He's resigned. So there's a big squabble there in that community. They also had this ecosystem fund that they announced. It was like a $200 million ecosystem fund. It's unclear if that's actually like a real thing or who put money into that. So the whole thing is kind of weird. And of course, as you remember, this Enigma thing was hacked at the ICO. So there was a fake ETH address put up like the day before the actual.

ICO and people lost a lot of money. So that whole project has been a mess. Yeah, the whole doctrine of trying to insulate your token from, you know, the SEC or other regulators by putting it in an offshore foundation is insane. It might work, but it's like out of the frying pan into the fire because now you have these unaccountable foundations. And if they, the, you know, director or board members of those foundations or, you know, whatever, the people in charge, if they go haywire, there's no accountability. It's generally, it's not, it has worked in the sense of Ethereum did it that way and they're, they're out there now. And the thing is functional. It's probably not a security at this point. I would say it's definitely not a security at this point. But even they had huge issues

with this layout. And it's usually the human beings. Same thing for Tezos. It's human beings. Yeah, the Tezos example. That was the one I was thinking of. in disputes with each other. And I don't know if that's a foundation specific issue. Maybe it's just a lack of governance in these type of things. There's no real way for like, let's say the investors to exert governance and reel in a team that's running a founder. Like, you know, if it's in the Seychelles or the Kman or the Isle of Man, what are

you going to do? Like appeal to the local courts there if you think that the team is misbehaving. Good luck. You're totally out of luck. So in your attempts to shield your tokens. from, you know, regulatory oversight, you're totally exposed from a governance perspective. So you're in a worse position. So the default is probably going to be like embezzlement and these things being treated as

slush funds. And the exception is when things actually go well and you happen to find some profoundly ethical people that are good stewards of capital. I think there's a lot of these stories out there that haven't been reported yet, actually. I've heard quite a few. projects run into issues on this front around embezzlement, around just bad behavior happening at these foundations. And investors really not having the recourse to do it. And sometimes it works out that the token launches and people get their money, but not before some get siphoned. It's a really,

it's a pirate ship. Dow's too. I mean, DAOs are just vectors for, you know, like I think the concept of a Dow is a good one. But if you look at a lot of these dows, it's just insuffing. insiders extracting, just extracting funds wantonly from the treasury. I mean, I'd love to see a deeper dive by some journalists. Maybe stop interviewing these stupid academics that think Tether causes the price of Bitcoin and actually do some real investigating, maybe. But so this is all a clown show, right? Like, this makes our industry look horrible because it is horrible.

And it's a bunch of JV actors that are building vaporware that are doing these type of things, but that's because the entrepreneurs that want to build real-world things with tokens that they want to be securities, there's just no path forward here. So if you walk into the SEC and you say, I've got a security token, has cash flows, I'm going to fully disclose how we do it, I'm going to abide by all the laws and the regulations. They say, yeah, like, let us know, hold on a second. And then you wait and you wait and you wait. And there's just no clarity.

There's no ATS venues that allow these things to trade on the secondary markets that are really approved at scale. And so there's just no path here. And so it's not that this industry is just by default corrupt. It's just that there's no framework in the United States to actually push this forward. And the SEC says that they have this under control and they clearly don't. I mean, the SEC really doesn't have a handle on this stuff. Yeah. If you come to the table hat and hand, you say, okay, look, we want to work with you. You end up getting the library credits treatment. You get eviscerated by the SEC, eviscerated. And so many entrepreneurs go for the FTX option.

They just go offshore. And then... And the banks have the same problem too. So the banks are really running into problems with the SEC around this. It's called SAB 121. So it's a staff accounting bulletin number 121 that the SEC put out. And it was put out in, I think, April. and it says that banks who want to offer cryptocurrency custody need to treat the customer assets as an asset on their balance sheet.

So let's say your Bank of New York Mellon or State Street and you want to offer crypto custody, it's obviously going to be super popular, right? You're going to have a great business. And let's say you get $10 billion worth of Bitcoin on your balance sheet that you're holding on behalf of customers. The SEC is saying is that you should take a capital charge on that. That should impact your capital ratios. And so crypto gets the highest risk weighting. Yeah. And so you're going to, why would that be on your balance sheet?

I mean, that's not the bank's money. They're custody on behalf of their customers. This does not apply to other types of assets. You wouldn't say, hey, you hold my stock. So like that's on your balance sheet. That's, it just doesn't make any sense. And so some banks are fighting back and trying to work to change this guidance and to make it such that this can operate more like any other type of asset.

Other banks are just throwing in the towel. And so we won't maybe toss some of those names out there. But there are banks that are just not doing crypto anymore that had publicly said that they're going to be in it. And this accounting thing through the SEC is the reason they're not doing it. And so that's a problem. And in the SEC's job, one of the prongs of their mandate is to promote capital formation. They're actively trying to stop capital formation. with respect to this new technology category,

which is a huge problem. I mean, that's, the SEC is, was not elected by the people. The SEC works for the people. It feels like we're becoming Venezuela. That's just my takeaway from all this. I feel like property rights are being eroded in this country. It's not a great set of, set of facts here with respect to the SEC. You know, we do have people at the SEC that get it.

We're lucky that people like Hester Perris are pushing back on this and that she gets the program, but that's just one of five commissioners. Look at the Federal Reserve too. I mean, the custodia denial is tough. I'm reading between the lines and seeing that the Fed wants to completely eliminate connectivity between the banking system and crypto to the extent they can. The SPDIs clearly don't seem to be progressing. The OCC has been very critical.

of crypto whenever they write any guidance. And the FJIC hates crypto. And we also have a White House that just put out some new, trying to bully Congress basically into marginalizing crypto. We have, you know, high-profile senators like Liz Warren wrote a letter this week to the PCAOB, the basically subsidiary of the SEC that audits auditors saying don't touch crypto. So the whole apparatus is basically hostile. It's a hostile environment. It's a very hostile environment in the U.S. to build one of these businesses. And that's why a lot of this innovation is happening elsewhere.

I mean, there's tremendous growth in the cryptocurrency sector. There's a lot of U.S. businesses that are doing really well and they've figured out a way to navigate it. But there's also just a ton of capital formation happening outside the United States, which is you would think not a great strategy. I mean, at the early days of the internet, if we had had a regulatory posture that said, hey, like the telephone companies are going to get to dictate the path forward here, I don't think we would like the way that ended. So is there?

There's actually new stuff on FTX as there is every week. FTX crime family update. All right. The Department of Justice filed a complaint at the end of last week after we had already gone to production that Sam Bankman-Fried is actively interfered. with witnesses. This includes messaging a number of former employees, including FTX U.S. General Counsel Ryan Miller on Signal. Later in this week, later this week, a judge heard this and ruled that SBF can no longer use Signal and he can no longer contact former employees.

What the, this guy really has a pair on him, huh? I can't believe how brazen this is. He's He's actively tampering with witnesses. This guy's a maniac. This supports the theory that he's just totally delusional and thinks that he can somehow write the ship here if he just gets in a room and sits down with these people. I mean, he's reaching out to John Ray, just like, hey, I'm going to be in New York. This is crazy. I'm now thinking that it was the wrong decision to let him out of jail.

He also, his lawyers submitted and they said that he should be able to access the funds. So all these loose wallets that were moving around that were clearly him. The lawyer said that he should be able to move those. So that was denied too. But I don't understand why he'd even raise that as an issue. The guy's a menace. It's going to be interesting to see if they get an independent examiner report. There's some people fighting against that, including John Ray, saying that they don't need one.

it's going to be too expensive. But the independent examiner report is what is going to take down Machinsky here. So if you don't get one, and let's just say SBF pleads guilty, all this is just going to fall on SBF, and you're not going to figure out, you know, who knew what, when, you know, who else was involved in this. I think the examiner report is critical here to figure out, you know, who else should go to jail.

You had this independent examiner report in Enron, and you also had it in Madoff, and it resulted, I think, in way more recovery. There's just more facts get put out there and you can follow more trails. You can go claw back more money. And you can, you know, we need to figure out this toy ventures thing, right?

Yeah, exactly. It's not just a matter of Sam Baker free. There's all of his lieutenants and all of his beneficiaries. Speaking of which, the Effective Ventures Foundation, which was a charity of his, is now being investigated. by the British Charity Commission.

Do they have subpoena authority over there at the British Charity Commission? Do they... What can they do? I don't know. I mean, I guess the question is, was Sam doing this cynically? You know, basically trying to whitewash his reputation.

Or, and this is my theory, did he actually believe that he was a foot soldier of effective altruism with his lunatic? utilitarian philosophy and genuinely believed that he needed to accumulate as much as wealth as possible in order to whatever, save the world from a rogue AI or whatever the hell it was that he believed in and that doing fraud was acceptable in that paradigm because he meant that he could accumulate as much wealth as possible. That's my theory. Can you imagine me? Because I think that theory

is probably in play. Can you imagine being one of the lawyers right now that's trying to workshop a defense? I think that could go. I think you could say, Is that what they're going to... I'm crazy. This is actually what I thought. Like, I am that insane. And it was a mix of Adderall and all these Parkinson's disease patches that I was on. And I just got myself to the point where I just actually believed all this stuff.

I mean, I think effective altruism should be characterized as a mental disorder, for sure. Because, like, the utilitarianism is a morally bankrupt philosophy, where you think, it doesn't matter what you do to achieve your objectives. You can justify the short-term actions, however bad they may be, if the outcomes are really good. If someone tells me they're an effective altruist, I am running for the hills. I mean, Sam admitted this, you know, he talked about this many times over. Like, yeah, I have a different attitude to risk-taking. You know, it makes sense to take risks if the payoffs are really big.

So one risk is doing fraud if the payoff is great. Yeah. Payoff wasn't good this time. But I would really question the integrity of anyone that believes these kinds of things. I think it's a very dangerous way to think. Yeah. I mean, it's similar to socialism in many respects. Like socialism, you're saying like, okay, you can, you know, subsume the individual

and expropriate people's wealth for the glorious revolution and for this utopian outcome. So it's a similar model of thinking. It's like no sacrifice is too great if the ultimate outcome is really idyllic. It's just that in practice, you never get to the utopia at the end. So it never ends up being worth it. Never happens that way. So I'm sure we'll have more on FTX next week, but that was kind of the big update. No more Sam with Signal, which is a shame.

Did you read this Arc Big Ideas, 2023 report? this thing is always good. Not yet actually, but a big fan of their work over there. A lot of, heady Bitcoin price predictions. Yeah. We'll put in the show notes.

Put in the show notes. It's always worth a read. They do a good job over there. I think Yassine does the crypto stuff over there. So shout out to Yassine. Good job. Also, like the Coin Metrics report on M.E. We should put that in the show notes too.

On chain execution, M.V. It's pretty, pretty, pretty deep report there. I like it. Yeah, one of the best reports I've actually read on M.EV. So, yeah, recommend that one. Put that one on the show notes. So I actually, you know, sometimes during the course of the week, things happen to me. And then I think to myself, oh, that'll be funny to talk about on the podcast. Yeah. And then I always forget it. And then when it comes to the podcast, I forget what the funny thing was. So, oh, we forgot to talk about ordnals. Is that,

Oh, my God. Yeah. How did we forget? So there's ordinals and then I just remember the other thing I want to talk about. Okay. All right. Well, you pick. All right. So I was in Mexico this week for a wedding. And I had a spare day. And so I was on the Yucatan Peninsula. Right. And I was like, okay, well, I'll go to see the Mayan ruins in Mexico. And they're actually really cool because you're basically in the jungle. and then there's just these gigantic pyramids sticking out of the jungle with no like real evidence

that anyone's attempted to describe them or you know but like normally when you go to some sort of important archaeological site like there'll be a plaque or something explaining what it is at least in the ones I went to they didn't have that but we happen to have a guide there with us and so she explaining a bunch of it but she was very perhaps overly sympathetic to the Maya, like the Maya civilization. So every single hieroglyphic that you would see, and they had tons of these, would depict like emperors and kings, like crushing captives and like sacrificing them, right? Every single one. And our guide was like, well, you know, yes, there was some human sacrifice, but really not that much. And also it was an honor to them. And, you know, the Aztecs were way worse.

actually. And so she was like totally in denial about the human sacrifice. And there was like this game that would play. And so there were actually courts that they built like stone courts. And there was like a ball game they played. I think it was called like poke to poke or something. And apparently the winning team would get sacrifice, which didn't make sense to me.

The winning team would get sacrifice? So you win? So it's like pickleball and the winner does. But so why would you want to? win. Like obviously you would just try and lose in that case. What a terrible game. I don't get it. I wonder that civilization didn't make it. And I'm like

well so why wouldn't anyone want to win the game? And she's like oh it didn't matter. Basically everybody would get sacrifice in the end they were all captives. And I'm like but didn't you just tell me that they didn't do sacrifices that much? Are you sure she wasn't just a bad

tour guide here? I mean she seemed very enthusiastic about her job but she was very focused on defending the reputation of the Maya, which if you, I don't know if this film is historically accurate, but if you've seen Mel Gibson's film Apocalyptic, I have not. It is a gruesome film.

It's about the Maya. It's actually really great. I recommend it. So anyway, I just found it extremely amusing. The contrast between like the archaeological evidence right in front of our faces, which was like all of these drawings of people being sacrificed. and then her insistence that they actually didn't really do it that much.

It's just I'm sure people, I'm sure they'll be an equivalent for our era of people saying, oh, they weren't that bad. Yeah. These scammers weren't that bad. They're effective altruists. Maybe we, yeah, archaeologists of the future can whitewash the crypto industry too. It wasn't that bad. I did want to get your take on ordinals and I'm going to butcher the hell out of this because

I have not been spending a lot of time on this. But from what I can gather, there's NFTs on Bitcoin or a thing again. To me, it looks a lot like colored coins or open asset protocol or some of these 2015 things like tagging UTXOs, tagging Satoshes. But what the heck's going on here? Yeah. So actually, Dennis Porto is a good introductory post on it, which I'll put in the show notes. I think he gives it a better treatment than I could. So, I mean, to be clear, like there have been NFTs on Bitcoin since a long time ago, like going on seven years. We're Pepets. Yeah.

Bitcoin. Spells of Genesis, I want to say. Like all kinds of stuff. And then, you know, obviously Bitcoin's not the main place that NFTs were issued. But I think it was Casey Rod or more, if I'm not mistaken, figured out how to create a new NFT protocol, taking advantage of taproot. and Segwit. And the way it works is basically tracking individual Satoshi's.

So in Bitcoin, of course, you don't have accounts. You track different quantities of Bitcoin. So it's not like Matt has 100 Bitcoin, Nick has 50 or anything. It's like Matt has all these different amounts of Bitcoin aggregated in his wallet. And they all have their individual histories. And you can track them over time. So ordnals assigns individual Satoshi's identities, and, you know, you can attach data to them. And apparently taproot means that you can stuff a ton of data in the witness, which is basically the signature part of the transaction.

And they figured out how to put arbitrary amounts of data all the way up into the full size of the block, basically. So together with segregated witness and taproot, you have this interesting schema now because segregated witness gave kind of a fee discount to the quote-unquote witness data. So it's also kind of cheaper to embed this data into the block from the fee perspective. So now you have people filling up entire blocks, which has never been done before with someone say junk data. Others say, you know, well, it's images and all kinds of content is audio files. And it's really causing a lot of controversy, I'd say.

So Adam Back had a post that he deleted where he said that it would be okay for miners to just discriminate and not push out blocks that had these type of transactions there, which to me is crazy. Yeah, some of these transactions are quote-of-quote non-standard, which means they wouldn't be relayed by normal nodes. So just recently, yesterday, I think Luxor, the mine, pool mined a four megabyte block, which is the biggest block ever. And it contained a Bitcoin wizard illustration. I think it was meant to be a representation of Udi Wertheimer as far as

I was thinking about. Okay. And that block had to be sent to them directly because it was a non-standard transaction. It just wouldn't have made it through the man pool. Is that the drill? Yeah, nodes wouldn't have related. And the fees were clearly paid out of banned as well. Yeah, because there's no fee on that, right? Yeah, virtually none. And they would have had to get paid for the opportunity cost of not including other fee-bank transactions.

So many Bitcoin is considered this like a denial of service attack, similar to miners used to mine empty blocks. And so in this case, you know, the issue is that nodes would have to download all this data when they're doing the initial download. They could discard it later. so you know it wouldn't necessarily be in your permanent node if you didn't want it but you would have to download it in the initial download and so that's a lot of data of course you know because blocks are not always four megabytes in fact that's almost never the case typically blocks are in the you know

one and a half to two and a half megabyte range now this ordinal's thing nfts the data being inserted directly on Bitcoin stuffed into the witness data, it means that you're guaranteeing almost that every block is four megabytes in size. I don't see a problem with that because that was the deal that was struck with Segwit. Segwit did effectively increase the potential size of a block to four megabytes from one megabyte. It's just that in practice, blocks were always smaller than that because it was practically impossible to create a normal block with that much witness data. So now we're reaching the theoretical limits practically. And some people don't like that because of the additional data overhead, basically.

So I guess if I was just drawn in both sides. So one side that doesn't like this is saying data overhead doesn't work. This is going to make it harder to run a full node. It's not good for the network. The other side is saying some combination of, hey, we need to have a fee market on Bitcoin. This is just more density to go into the blocks. We should be encouraging people to build things. We're going to have this potential issue at some point where we don't have a blocker award

and we're going to need fees paid on the network. This is just a good thing to promote more activity. Then, you know, other people in that camp would say, we just need more technical innovation on Bitcoin. And the project is stagnant and we need to have more vibrancy. NFTs were on Bitcoin first. Now they're living productive lives on Ethereum and Solana. And, you know, a lot of the innovation in that sector is just, not on Bitcoin. So why wouldn't we try to have that on Bitcoin? So that's, yeah, those are kind of

the two poles of the argument, I would say. Yeah, it gets to a really deep conflict divisions in Bitcoin. It's basically the monetarist view of Bitcoin versus the more pluralistic, non-monitorist view, I suppose. And for the most part, the monetarists have won on Bitcoin. Like if you go back to the olden days, like counterparty transactions were deliberately made non-standard. James Presswitch talked about this on an episode with us back in the day, which is a great episode. So the kind of Luke Dash school of thought has historically mostly prevailed on Bitcoin. Basically, Bitcoin wasn't envisioned as being very single track. You know, it's for one thing, which is governing specifically Bitcoin transactions, not transfers of any

other unit non-native units. You know, like historically Tether was on Bitcoin on Omni and then, you know, it moved away to other blockchains. NFTs mostly moved away. And so that school taught is mainly dominated. So basically the idea is parsimony, a low data load, really not moving, toying with the block size too much, not adding complexity. And then, you know, historically I would say the people that wanted to use Bitcoin for other stuff have kind of have been marginalized or eventually found greener pastures elsewhere. This is reviving that debate now. I guess, you know, I'm sympathetic to a certain degree with the camp. It's like, well, you're kind of not following the spirit of the law as far as the discounted witness space is concerned. So it's

almost like Bitcoin's underpricing this kind of data insertion. But also, the whole Bitcoin ideology is, you know, let's not tweak and change the code arbitrarily, you know, just on a very reactive basis. So we are kind of stuck with this as far as I can tell. So people are going to have to make their peace with it. And, you know, the people saying that, you know, pools should be filtering this out or miners should be filtering this out or something. Those are the same people that preach that Bitcoin is leaderless and has no governance. So kind of pick aside, basically. It's always hard with these Bitcoin Civil Wars because I never know what side to pick.

During the beginning parts of the big block size debate, I was a big blocker. And I was like, yeah, this Bitcoin XT thing makes a ton of sense. And then I later changed my mind and I realized that the small blocks were better. So my gut reaction on this thing is I want Bitcoin NFTs. I think that's really cool. But who knows? Maybe I'll think differently six months from now. It doesn't seem honestly that harmful to Bitcoin and it's funny.

and the people that are really upset about it are mostly odious and lame people. So basically, you know, the decision is clear. Yeah. I think in general, like anything that Blockstream is pushing, I'm on the other side of at this point. Yeah. Undeniably. And it's very hypocrital goal of add them back to call for censorship on Bitcoin. Bitcoiners, like, they discredit themselves so much if they start calling for censorship.

It's just embarrassing. Yeah. it's it's not a great look um in other news i just put my elbow through this dress shirt do you see that i wish we were doing that how is that possible this is the third time i've done this in like seven days what the same shirt different shirts no different shirts i had to leave a shirt in new york city this week do you have like really pointy elbows or something i think these just sure i haven't i need a new run of shirts these are brux bro shirts but i don't know they're a couple years old but i don't know three elbow blowouts in one week.

That's got to be a record. I was just reading an article about how Brooks Brothers cheapen their brand. They went bankrupt and now the shirts are terrible. I don't know what's going on. I need to, you know, maybe I should just start wearing t-shirts. Yeah, I mean, you don't have to dress up as a VC anymore.

You can just dressed out. I think I'm like the most dressed up VC. I'm always like wearing a colored shirt. I really need to. I dress like I'm still at Fidelity. I think that you should have your own style and not feel compared to wear the weird VC uniform of like, I guess, like, Lulu pants and like sneakers and a t-shirt. I do like the Lulu pants, but yeah, it's, you got to stick with what you're good at and I'm like a collar shirt button down. That's kind of always been my thing.

Yeah, it just feels really conformist to wear the like silicon. Valley uniform. No. Yeah. You got to find your in style. Yeah. So what was your take on Brady here? So he's done for good, right?

Yeah, he's done. He's going to be a Fox announcer. It looks like he's going to potentially knock Greg Olson out of that booth, the number one booth. And he's going to be the color man on the Fox broadcast. I think he's pretty charismatic. Sometimes, like, world-class athletes are not. And it's painful to see them.

around in commentary rolls but I think he's going to do a good job yeah I don't know it would be interesting Peyton Manning does a great job he's excellent I mean like you know think about Lionel Messi well maybe because he doesn't speak a lot of English but he just doesn't seem he's a great you know probably greatest soccer player of all time but I wouldn't want him as an announcer at all yeah yeah I don't know anything about him never watched him play not one time messy I don't know he was he in the I watched the overtime of the the match was he he was in that one right it was I yes he was playing but my wife walked downstairs and I was I had it on she's like what are you doing really help help with the kids I was you're gonna

this is like an important soccer game I have to you don't understand we're gonna be talking about this I need to it's oh it went to like the penalty kicks we we have to keep this on I I I can't stand soccer good for you for sticking up for yourself in that moment I mean it's like the one soccer game you have to watch every four years. It's, yeah, I think it's like the only soccer that I want to watch is the last couple minutes of the World Cup and then kid soccer. I mean, it was a good game. Like, you weren't let down.

It was a good game, yeah. Well, I only watched the end, but like the penalty kicks were fun. If the whole thing was penalty kicks, I would get a lot of enjoyment of that. Other than that, though, it's just like, here's how to fix soccer. Make it the size of like a hockey arena. take a couple of people off the court and then you can hit each other. Okay, I'm interested.

That's a lot more fun. Otherwise, it's just like you're kicking it 35, 40 yards. People are just standing there. A couple of people running around like crazy, but the whole thing makes no sense. And then the score is like zero to zero every single time. Well, you know,

ever since I visited the Mayan ruins, I have been thinking of myself, I really want to see historical reenactment of pock to pock. Because if you look at the arena, it's like kind of like a trough between two pyramids and it's pretty steep and then there's a ring at the top.

And apparently it's either your elbows or your knees to get the ball through the ring so that you can be sacrificed. So I want to know what the gameplay was like. I mean, we should. Yeah, we should figure that out. Has anyone recreated a match of poke to poke to poker. I need to know this.

I'm curious about that. All right. I think we're at our time here. We've got a very cold situation up here in Boston, so it's going to get cold here this weekend. Can't relate. All right, everyone. Have a safe and healthy weekend. We will see you on Monday.