On The Brink with Castle Island - Weekly Roundup 04/14/23 (ETH unstaking, FedNow vs CBDCs, NYT on mining, FTX 2.0 gets closer) (EP.416)

Episode Date: April 14, 2023

Matt and Nic return for another week of news and deals. In this episode:  Is Ethereum going through a 'bullish unlock'? Did the SEC decicion around staking help decentralize Ethereum? What is a commodity? We pitch futures for restaurant bookings The problem with 'phygitals' What's going on with DWF labs? Twitter users will be able to trade crypto through the app Is FedNow a CBDC? Does FedNow introduce risks to the banking system? A relaunch of FTX gets more likely How the DOJ caught the Silk Road hacker Could a CBDC emerge which is actually private? We roll out the Tap In or Tap Out segment Is France going to become a crypto haven? The NYT article on Bitcoin mining Did the NYT doctor pictures to make Bitcoin miners look more polluting than they are? CIV is hiring Sponsor notes:  Subscribe to the Coin Metrics State of the Network newsletter: this week, Ethereum's Shanghai redemption

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 into Britain's ailing economy with a new round of Concentuteease. You print 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 you by Coin Metrics. And here is the Metrics Minute. We're bringing it back. So, of course, big news today. Ethereum validators may now unstake their ETH.

The Coin Metrics team is on top of it. Ethereum validators are withdrawing between 5 and 12,000 ETH per hour. hour with a total of, according to their estimate, 166,000 ETH or $332 million removed from the consensus layer so far. That's of mid-afternoon on Thursday. The current standings are 22,000 validators will exit. 5300 already exited, 17,000 queued for exit. So it does look, that's your metrics minute. It does look like some folks are indeed unstaking, but despite that, the price of Eath is rallying. It's a bullish unlock. It keeps on going up. Price of Bitcoin's going up too. So, all right, here's my explanations, two explanations. One, this was obviously, to a certain

degree priced in. I know that's a meme, but that's how financial markets work. So it wasn't a surprise to the market. Two, this shows that the ETH staking trade works. Like you can do the final leg, which is exiting. So that I think gives comfort to a certain type of investor. First of all, there's the derisking element of a technically complex upgrade. That's always part of it. Second, that gives comfort to certain investors that they can basically do the second leg of the ETH carry trade. So, you know, borrow, buy ETH, stake it, obtain the yield on stake. And so the fact that this is actually a possible trade that can now be done, I think it's just imbues a general confidence in the ecosystem, potentially unlocks the possibility of, you know,

investors who may not have wanted to previously participate to participate. So that's kind of my explanation for the price action. I agree with that. I think David Hoffman was all over this when we had him on the podcast a few months ago. But I think that is what it is. You have more investors that see this is just something that they can execute upon now. And it de-risks the whole thing. De-risk the whole Ethereum protocol, really, for certain classes of investors. So today I was giving a talk to a large financial institutions. that shall go unnamed. One of the big discussion points was around exchanges staking or not staking. And I was thinking to myself that the Wells notices and SEC enforcement actions against Cracken and Coinbase

are actually, they promote the decentralization of Ethereum at the protocol layer, because now you don't have these huge custodians that are staking on behalf of clients, obviously assuming that, you know, Coinbase loses that case. TBD. And so that's kind of governmental decision that is pro-decentralization of ETH validation, which I don't think was the reason why they did it, but that's an interesting sort of positive outcome from that, that there was more individual staking and less industrial staking, which was always one of the failure modes of staking. So if you were concerned about the concentrated nature of ETH staking, then that SEC decision helped,

actually allay that concern. And now we see Cracken, of course, unstaking, given that they're obliged to do it on account of them curtailing their unstaking ambition. So we see them exiting the queue as well. Kind of an interesting, unexpected development there. I'm sure that's what Mr. Gensler was thinking, just promote the vibrancy and the decentralization of these networks by, you know, really going to the exchanges and just making sure that they do what's in the best interest for the public protocol. Right. Yeah, that was clearly his motive. That's a funny one. The debate around, this came up in the context of the debate around proof of work, which was kicked off with this, again, New York Times article this week. And, you know, that's really the question. Do proof

of work and proof of state grant you identical assurances? If so, you might think proof of work is wasteful. My point has always been that they give you different kinds of assurances because proof of state more resembles a kind of shareholder governance approach to authority on the blockchain. And this is one of those weird countervailing things, which partially makes that concern less material, although it's still a concern of mine, I would say. I think that is the primary distinction between proof work and proof of stake, is that proof work, we have plenty of empirical evidence now that there's no one actor that can really seize control because it's such a competitive open free market.

Whereas proof of stake, industrial staking, there do seem to be some barriers to entry, given that it's these big custodians exchanges doing it, and they have a regulatory barrier to entry. But all that said, the SEC decisions have gone some way to combat that. I think you're also going to see some interesting financial products start to get built around the ability to withdraw from the eth staking. And you probably won't see those derivative type of contracts spawned in the United States out of the gate. although they'll get there eventually, but the types of new financial instruments and the ways to offload risk will be interesting here.

So I was reviewing the age-old debate of ETH being security versus commodity. CFTC maintains its commodity. They have done so for a while. But there's an interview with the CFTC commissioner recently where she stated that potentially it could be both a security and a commodity. I didn't know that that was how the taxonomy worked under the law, but apparently that's a thing. Something being considered a commodity by the CFTDC doesn't strictly mean that it can't also be understood as a security, which is

a wild interpretation. Almost everything can be a commodity, right? You're a commodity, right? Can't humans be commodities? I think that was discouraged some centuries ago was the financialization of humans. Well, fair enough, but I think the definition is very broad for being a commodity. So except for under U.S. Law, onions and movie theater tickets. So here's something I've been musing about today regarding things that are not financialized that ought to be. Restaurant reservations. Have you given any thought to this?

Not only have I given it thought to, I've spoken to two or three companies that are looking to do this, actually. Okay, so I didn't know this. but I've been thinking to myself lately how hard it is to get decent reservations and thinking, well, there should be a way for the restaurant to sell futures on the reservations so they can lock in a premium and guarantee that they are filling the tables appropriately. Now, there is actually a secondary market for advanced reservations. I found this, but the restaurants don't really capture that, right? because that's just these basically scalpers make reservations and then make a market.

So that is not return to the restaurant. So what the restaurant should do is internalize the flow. They should sell the futures directly. Lock in, let's say, guaranteed spend in exchange for you as the person making the reservation, having the certainty. So turn the reservation away from a queue-based system into a market-based system, and the restaurant de-risks their exposure. So basically there should be a futures market around restaurant bookings, in my opinion. 100%.

So the other types of things you should be able to do is enter into a contract with the restaurant where you always get not only a reservation, but you get a part of the restaurant. So let's say you want the right to go to that restaurant five times a month and have the first table in the window. There is value there for sure. And right now that value is just not being captured by the restaurant. So I'm normally against the excessive financialization of things, which you might think funny, given that that's basically what our industry is. But this is one of the things where it is clearly there's a commodity producer and they're not taking advantage of the robust financial markets in the United States.

This needs to happen. What was that restaurant in Boston that you used to go to like three times per weekend, the Italian place? Giacomo. See, Joccimo's classic case study. They would make a gold mine. total market failure there. It was like a Soviet system. You literally had to wait outside in line because they didn't accept any reservations

at all. And people would just wait in the snow to get into Jocamo's. Best chicken parliament Boston, I think. It's incredible. And it would be even better if they would sell futures. Just put that on a blockchain, Jacamo. Yeah, I love that spot.

I strongly recommend it. I'm sure they listen. That's a total, that's a cash operation over there too, by the way. It is. money. Yeah. I mean, and the Q-based system. I mean, come on, this is America. This is not the USSR. Let's move to a market-based system. You can get a bottle of wine at Jocamo's for like $15, a full bottle. Yeah, that's the weird thing, is that the food is incredibly high quality, but also very cheap. So that's why the line is so long, because it's in that sweet spot. Credible place.

All right. We'll table that idea. So that's our request for startup, I guess, for the day. I don't know if there's any crypto element, but there could be. I think these things are probably sold as NFTs, right? I mean, you'd have some sort of a membership into a restaurant is how I think that would work. Yeah. Speaking of NFTs, NFT NYC this week. Yeah, you're going. I have a renewed bullishness on NFTs. Talking to Ria about this today, the NFTs have really hung in there from a I would say an index of NFTs would probably, blue chip NFTs would probably have actually outperformed the broader crypto market amidst the downturn. I think this intersection of physical objects and NFTs is also an area where you're just

going to see an explosion of companies experimenting with this. We have a company called Dust Identity that's tagging physical objects and really giving assurances that the thing exists in the real world and can be traced. And I think that you're just going to see a lot of luxury goods start to go that direction. You're going to see a lot of collectibles. You're going to see a lot of fractional ownership start to get represented this way. Some of them will be securities. Some of them won't be securities. But this will be a pretty interesting category, I think, for the next year. Yeah, I wish that the term of art wasn't fidgetal. Didn't you come up with that? No, no, I don't take credit for that.

I think Fidgital is a bad and annoying word to say. We have a portfolio company called N-State, which does sneakers issued as NFTs, that, you know, then the sneakers connected to the analog device. They call them entangled, which is like a quantum mechanics metaphor, because the physical and the digital are distinct, but they're also related. They're tied together. So they say entangled, but that never really caught on. It appears that we're stuck with fidgetal.

For better or worse. So good week of Castle Island content this week. You sat down with Dennis and Bertram of Talley. Probably the dominant Dow management tooling that exists right now. That's Dennis' second appearance on the show. Thought that was a good episode. One of the most interesting men in America, I think, Dennis and Bertram, the depth of things that he can talk about. We recorded for about a half an hour before we pressed record, just talking about.

all sorts of stuff Machiavelli, early Bitcoin exchanges, a man of great depth that Dennis and Bertram. We should do a podcast, which is the pre-podcast podcast, because some of the most interesting things are often said before you hit record. Some of the things you just can't say on air too. It's just I did one today. It would have been great. But yeah, the pre-podcast is really where people get candid. So let's hop in a deals. There's an interesting, before we hop in a deals, we have to address a number of deals that have occurred recently. Okay. So what's going on?

What's going on here, Matt? DWF Labs, this outfit that has just been chucking money in the crypto ecosystem for the past few weeks. It did a $60 million EOS deal. They've done all sorts of long-tail crappy coins that I've never heard of. And we have a new policy on this podcast, is that DWF Labs deals do not get announced on this podcast. because I am. Wow. Wow. What's the first? Yeah, there's just you don't get a deal's blacklist. And I'll go a step further. Any company that takes money from DWF labs, you're not getting mentioned on the podcast anymore because this is a shady operation. So these guys are alleging to be a market making operation.

I just Google around for the people behind this outfit. And these guys aren't putting that money into these startups. This is a press release market manipulation scheme that these guys are running. Wow. And we're not going to have any of it on the podcast. There's been too many bad boys. This is like a kill the baby Hitler before it becomes Hitler type of a situation. We've already seen Alameda. We don't need to see Alameda 2.0 with DWF Labs, which is just no place for this. So these guys are going out. They're announcing these deals with these crappy cryptocurrencies that haven't been relevant since 2017. They're saying it's X dollars. It's actually. actually not. They're just buying some tokens, manipulating the price. They're running some scheme

over here. And meanwhile, you have outfits like CoinDesk that are saying that they're the most prolific crypto investor just because they keep on doing press releases about investing in these cryptocurrencies. This is the last thing we need right now as an industry is DWF Labs, bad boys. Wow. That's quite quite the stern allegation. So as the recipient of a DWF investment, in quotes, I guess you would do it because the press, is worth something on its own, even if it's not actually a genuine injection of sort of primary capital. So I don't know how they structure this, but they certainly are not filing any forms with any government regulator that they have a fund even. So, you know, there are all sorts of ways you can

manipulate a token. So you could do it press release and you could say we raised X million dollars and you could be buying discounted tokens from that treasury and you could be injecting liquidity. you could be making markets. You could be wash trading this thing. And, you know, you could say that you're putting in X dollars, but you could be putting in far, far less, and you could just be manipulating the price. And that's what I think's going on.

Wow. Okay. So DWF deals no longer welcome on the show. However, there are some real deals. Should we start with one from the SIV portfolio? I'm very excited about this one. Kat Labs, which is a compliance and cybersecurity startup, they raised $4.3 million.

We co-led the deal along with CMT Digital and Brevin Howard and RW three ventures. So I'm super excited about this one. It's right at the intersection of compliance and protection on blockchains, basically. So the founder, Lilita Infante, she spent 10 years as a special agent at the DOJ, where she actually created a federal task force, focus on crypto, aiming to take down illicit networks. and now she's starting Cat Labs to scale this up, basically. So we're just not going to call out the bad boys at this podcast anymore. We're going to actively fund people to go get them.

That's kind of the gist of it. Strong, strong. We're coming for you, Suu and Kyle. We're coming for you. Next up we have another fraud-related deal. Fire, a fraud prevention platform. They raise $3.5 million from Atomic. Yeah, hot category here.

fraud prevention. Been a lot of fraud. Next one up is SciLabs. I think that's how you say it. It's the company behind the SAI layer 1 blockchain. It raised $30 million from Jump Crypto, distributed global, multi-coin, asymmetric, flow traders, and others. So that appears to be it for deals

this week after an incredibly hot week last week. Much slower this week. We had a little get-together in Boston last night, and there's a few entrepreneurs that were saying just the deals are off the charts lately. Yeah, I mean, Alex Thorne had an interesting thread on Twitter saying that venture activity in crypto is actually a two-year low, but deals are still getting done. Yeah, it feels a lot slower to me than it actually is being represented through our newsletter, the deals that are getting announced. So,

yeah, to me, it feels slow. But part of that's also because there's been a banking crisis, and I think a lot of VCs are just focused on stabilizing their portfolio with Silicon Valley Bank. melting down, things like that. So news of the week, also fairly light news week. We first up, we have Twitter and E. Toro announcing a partnership to allow Twitter to, Twitter users to trade stocks and cryptocurrencies through the Twitter app. I don't know. I guess that's, I guess that would make sense.

I just don't know if I would ever do that. Right. It's not like, yeah, we have plenty of ways to do that. I think Elon's just trying a lot of things right now. Really changing the nature of Twitter. It's been interesting to see certain press organizations have quit Twitter in protest of new labels, basically being called, you know, state-funded media operations. And I think NPR actually quit Twitter.

There's just a drama every other day with Twitter. It's just I can't keep up with it all. I did take a small measure of satisfaction from NPR, basically being chased off the platform. or rage quitting because they did call me a cryptocurrency promoter. They did. Yeah. Which is unforgettable. No love lost there.

Yeah. Yeah. I mean, you can't expect to do that and then have us defend you in a tour argument. Unfortunately not, they lost me as an ally. Yeah. That's too bad. It's also a bunch of institutional stuff happening in these markets that I find pretty interesting.

So LCH, which is this huge clearinghouse group, the British clearinghouse group, they announced that they're going to be providing clearinghouse. services for cash-settled Bitcoin index futures and options contracts from G-Fox, GFOX, which is a digital asset trading venue, a derivatives trading venue. So pretty big deal. I think fits in line with this institutionalization story that's unfortunately happening a lot more outside of the United States. And another one that happened was this new ECN, that stands for electronic communication network. There's one called Cipator that launched this week out of Israel. So for From where I sit and the deals we're seeing, there's just more and more institutional plumbing

getting built. I'm seeing much more of it incorporated in London, actually. So might need to dust off that passport. Yeah. Worst case, I guess I'm moving back to the UK. Actually, on the clearinghouse side, it has occurred to me lately that Fed now, so a lot of people thought that Fed now, the announcement was suspiciously timed with the. the dissolution of Cigna and Sen.

I don't know if I believe that, but it certainly did look suspicious. What I have been thinking about is there are a bunch of private clearing and settlement networks that the banks use, but that aren't government-administrated. They're not government-administrated. So RTP, which is run by the clearinghouse,

which is a private institution, I think they could plausibly see Fed, now as a competitor for their product. And it does feel a little bit odd that all these private sector solutions exist and the government is now creating a public alternative. And certainly I think the Fed would see Fed now as potentially eliminating the need for some crypto tools that have been created. So it leaves me a little bit uneasy about basically the government competing with the private

sector. I don't know if that's the motive, but that's kind of a weird element here that isn't being talked about as much. I find this whole CBDC thing to be really puzzling because I didn't have the impression that the government was that far down the path on CBDCs. I thought this whole Boston thing was kind of like a proof of concept. But the Republicans are really treating this like the Biden administration was ready to press go on a CBDC. I just think that would take like 10 years to build. I agree. And I actually, I actually. don't see that much support for a CBDC in the Federal Reserve, but nevertheless, it's become a talking point. People are calling Fed Now like a proto-C. I don't see them as the same thing at all.

CBDC is holding an account directly with the government. Be like if you could scale up Treasury Direct and actually use it as a checking account, basically. Yeah. Yeah. But that's very different from a faster settlement tool, which is what Fed Now is. Although on Fed Now, I do find it interesting that the banking regulator is not very concerned about the pace of deposits being withdrawn. So just an increase in the velocity of bank deposits, potentially the cause of the bank runs. And Fed Now makes it faster to withdraw liquidity from bank. So I actually think it's possible that they turn it in July and then in subsequent months turn it off or throttle it if they perceive it to be causing problems with the banks. It's incredible to me that this is not something that's stress tested

at a much greater scale, just how fast you can create these bank runs in this day and age. You know, they didn't stress test a rising interest rate environment to this clip and they also just didn't stress test how fast you can get the money out. I mean, that day, that Thursday at Silicon Valley Bank, there's been nothing like that in the history. banking. Yeah, that's literally the fastest withdrawal we've ever seen. And a lot of the blame was placed on the fact that these banks were so fintech enabled. And it's kind of interesting that FinTech builds an overlay on top of sort of legacy bank settlement systems and then is alleged to be increasing depository withdrawal pace. I think that's part of the explanation for why

federal regulators are cracking down on banking as a service as well, which is happening in parallel to the crypto crackdown. That's not been covered as much. I'm, you know, assembling evidence, and potentially write an article about it, but it is true. A lot of the banking partners for the fintechs are being pressured because it's believed among bank regulators that the fintechs are increasing the fragility of the banking system. And now against that backdrop, we're going to get fed now, which certainly would increase, decrease the frictions required to basically withdraw from bank. So it is curious that they're very concerned about technological enhancements, which increase withdrawal pace. Fed now would be another similar enhancement. I'm not sure they're

actually ready for the consequences of that. I safe to say that they're not. Another story, I guess it's, it isn't a huge story yet, but we mentioned it on the podcast last week around this potential that FTX would be relaunched. There's been a lot of public information in some of these court filings from the lawyers and their structuring guys that are coding what they're working on around FTX 2.0. And a lot of folks that are active on the creditor side are pushing for this. So we had a bunch of inbound from people that listened to the podcast saying that's a crazy idea. That's never going to happen. That's stupid. But I kind of hate to burst your bubble. I think this is going to happen. Yeah. I mean, yesterday was basically, there was a public

hearing and it was basically effectively confirmed that the debtors, aka John Ray at Al, are really considering this as a way to maximize value for the entity. So potentially we'd be looking at a spin-out of the FTX exchange IP, maybe relaunch of FTCS.com. This came on the heels of news that they found seven billion of assets or they have seven billion of assets. And I think yesterday was really the first time that people realized this may actually happen. It was also somewhat known before, if you looked carefully at the filings that the lawyers had to make about what they were spending their time doing. But yesterday was the first day people really realized, yeah, FDX 2.0 is probably going to be a thing. So let's talk a little bit more about what this could potentially look like.

obviously it's going to have to be outside of the United States. The core venue, I don't really envision them restarting FTX U.S. I don't see that as really viable, given everything that's happened. But all right, so you start this FTX international thing again. There's clearly a place in the market for it. It was a very popular venue, had a ton of connectivity. You wouldn't be able to take U.S. citizens. So you'd have a bunch of people that were probably accessing this venue from the U.S.

that wouldn't be able to do it. it would have to be buttoned up from a compliance and regulatory perspective. There's the obvious question of what would the liquidity look like since Alameda won't be there. So you won't have this kind of infinite backstop on the market making. So will the market makers come and play ball on the maker side? And then on the taker side, it's like what's the retail flow going to be on an exchange like that? Those are unanswered questions at the moment. Yeah.

I think there's something there. There's the technology, which presumably those facts. value there. There's a whole bunch of user accounts. I mean, a bunch of users still have accounts. Clearly, they've been immobilized and, you know, something that will want to leave, but they probably haven't all found alternative suitable values that they trust. And you would have the opportunity to rebuild it from a compliance perspective from the ground up with real KYC, maybe outsourced custody, if people are concerned about that, proofs of reserve. So you could do it right from the back end side. And of course, a lot of the front end's already built.

I think it would be a really interesting prospect. It would just have to look very different from 1.0, especially on the compliance front. Yeah, I mean, I guess there is a question of how much technology is there. They didn't have like a back end architecture with custody. I think you'd have to have like a tri-party custodian as part of this. I don't think anyone would want to park their assets on anything called FTX. Maybe it won't be called FTX, but still remains that you need to have tri-party custody and something like this, I think. Yeah, is there a matching engine that has value there? I guess there's user accounts, although wasn't the whole thing kind of nuked and there's that hack, so who knows what's actually left there? So a lot of unanswered questions, but the fact

remains that this is probably one of the most obvious ways to get a bigger recovery for the creditors. And so I think if someone wants to finance this, it will for sure happen. Yeah. I mean, right now the asset's worth zero. And it is the job of the debtors to maximize the value of the asset. It appears that they've chosen this path or on the brink of choosing the path as a way to return as much value as possible. So we'll be watching this carefully. I mean, it's also against this backdrop of Binance and they're being just a huge opportunity in the market.

Binance's market share here is not going to be sustainable if they don't settle, if they don't have a path here. I think folks are just going to start to leave that exchange. FTX popping back on the scene in a newly formed entity that has none of the, like, doesn't have Romnik, doesn't have SBF, doesn't have Trubuco, doesn't have like the band of misfit, rogue, terrible people involved in it. It's, you know, it's probably viable. Yeah, I agree. I mean, they, at this point it'd be kind of like the Silk Road coins where they were dirty and then they'd be. received a baptism and they're now clean again. A new FTX relaunch wouldn't have that existing regulatory overhead hanging over them like so many other exchanges do, especially

finance, you know, a lot of uncertainty about their future right now. So we'll keep you posted on that. But the price of FTT, I guess, kind of tipped people off on that, huh? Which is curious because there is no mention of the fate of FTT whatsoever. I mean, I don't know how you would fit that into the new exchange at all. But they do own a lot of FTT, so I guess their incentive is to maximize value that asset, too, the debtors. I guess, I don't know.

That's a tricky one. Did you read this Wall Street Journal article this morning about this James Zong character who stole a bunch of money from the Silk Road? Yeah, it's an interesting article the way they positioned it saying that the DOJ was able to crack Bitcoin's anonymity, which, of course, Bitcoin is not anonymous. It's pseudonymous.

But yeah, how did they manage to do it there? Well, so, you know, I guess the article just highlights how chain analysis and TRM work to me. So there's nothing new to, like, industry participants that know that these software companies exist. But back in 2012, when this guy, James Zong, originally stole the money from the Silk Road, these companies did not exist yet at scale. And so you couldn't do this type of analysis right out of the gate. And so it highlights the fact that if you do a crime on a public blockchain, years in the future, when there's better technology, you're probably going to be caught.

There's an immutable trail of everywhere you move the money. These forensic tools are only getting sharper. So only the real dumb criminals, I think, would be doing crimes on a public chain. Unless you're North Korea, you're just kind of have all-term. alternative motives. You're trying to get as much cash as you can. But if you want to stay not in prison, I think it's probably a good idea to stay away from public blockchain crime. This guy, James Zong, by the way, the way that he stole money from the Silk Road, it wasn't like he manipulated some back-end server, did some intricate attack. He found a bug where if you double-click

on the withdrawal button, you get the money. So this guy is just sitting on a screen just doop do he's told like $3.2 billion at current value worth of Bitcoin. He had it just sitting around his house. And he spent a bunch of it, but it was in like a tin can in his kitchen. Yeah, that's the weird lesson we have from a lot of these hackers, including the BitFinex hackers, they end up with all this Bitcoin and then have virtually no way to use it without it being connected to them. And as you say, your crime is immortalized on the blockchain forever.

So even if the resources don't exist or the expertise doesn't exist at the time to make those associations, law enforcement has literally until the end of eternity to make the necessary inferences. So it is a bad place for crime. Yeah, you will be caught. And I contrast that to another article that was in the journal today around J.P. Morgan and what they knew about the Epstein case. And so Epstein was flagged because he was pulling out 750, thousand dollars per year in cash from his jp morgan account that turns out to be a much better way

to make payments and do crimes is just physical cash yeah and i'm torn because i think cash is a great product and if let's say cash didn't exist and it was invented today someone invented cash i'm certain that the government would not want it to exist correct so there's you know there's a balance that we you have to strike as a society between some true anonymity and payments. If you're making payments that are legal, but with some kind of disfavored industry, that should be allowed. And then, of course, the need to prosecute crime. So I am torn. I think we need cash as a society.

But of course, yeah, the blockchain is not a good place to do crime. I have someone in my life who is a very hardcore Democrat, and I am, for the record, not affiliated with either party, have voted for both in the past. And this person, this hardcore Democrat, wants a CBDC and thinks that, you know, thinks that you should be able to, like, surveil transactions and that you should be able to, like, cut down on certain categories of, like, companies. And I just think this is so short-sighted, because what are you going to do when they're there's like a hardcore Republican in the seat that wants to outlaw payments to like abortion clinics or something.

It's just you have to design systems that can be comportable to both sides of the aisle. I don't think it's in anyone's interest to completely politicize payment systems. This is why the choke point stuff that we've been talking about is insidious because it's an extrajudicial way to marginalize an industry through the banking sector. that shouldn't be a politicized thing because there will come a day where you're out of power and then you're on the other end of the stick. I mean, it's interesting, though, because there is actually a progressive faction that supports cash or supports CBDCs with strong privacy preserving characteristics. Like consider Rohan Gray, for instance, certainly a critic of crypto,

a supporter of CBDCs, but wants them to be as cash-like and private as possible. So there's kind of a horseshoe thing going on. Yeah, so Stephen Lynch, the congressman up here in Boston, had proposed this bill. There's a rumor that's coming back in that would basically say that you could have privacy in the context of a CBDC. Always kind of puzzled me because he's not a fan of this industry whatsoever. It's possible that he just got the Roham Gray bill and just put his name on it. I mean, there's a lot of people that think that only the government can actually create true transactional privacy. And so they'd support a CBDC for that reason with privacy.

being a quote-unquote public good. But I'm just very skeptical because I don't see the government gaining that kind of power and possible discretion to create this incredible surveillance net through a CBDC and then choosing to give it away. I just don't think that would occur pragmatically. All right. So we're going to try a new segment. It's your idea.

Let's take it for a test run. Yeah. So I got this from a UFC podcast that I listened to. It's called Tap In or Tap Out. So we're going to throw a couple concepts at each other and decide whether we're tapping in or tapping in means that you support it. Okay. All right, let's go. So I'll start. There is an article in Bloomberg saying that France is becoming a haven for crypto amidst the crackdown in the U.S. Are you tapping in or tapping out on France as a crypto domicile?

So I will say this is someone that has been speaking French since I was in first grade in a French immersion program. So I have a lot of sympathies with the French. And I have used French in my professional career to liquidate a hardwood flooring company. It's neither here nor there. However, I am tapping out on this. My understanding of how things work in France is that people go on vacation in July and August the entire month. And that if you hire someone, you can never fire them ever. And so I'm tapping out on France as a hub for any technology innovation.

Yeah, I mean, to be clear, I'm tapping in on French pastries. Yes. But I'm also tapping out on French. France is a place to start a company. Sorry, France. Southern France, a beautiful place. And they have tremendous wine. The food is incredible.

I went on my honeymoon there. I really like France. And I would strongly advise companies not to start businesses in front. phrase. All right. The next tap in or tap out, we have this New York Times article on Bitcoin mining. So are you tapping in or tapping out on their whole premise on Bitcoin mining? Unsurprisingly tapping out, first of all, because they put a stupid quote of line in there. And fun fact on this, my dad saw this and called me and said, you shouldn't go on the record and defend Bitcoin miners. they successfully turned my father against me.

So your dad, hold on, let's back up here. So your dad saw this and he just said, you can't be doing this anymore? You can't be defending the crypto industry and talking about Bitcoin. I love my dad, but he read the article and he said you shouldn't defend the Bitcoin. They're indefensible. You shouldn't defend them. Some people just take everything the New York Times says is fact, it seems.

and it seems like your dad is one of them. I hope not, but anyway, for that reason and others, I'm tapping out on this article. Also, they did this weird methodology of emissions calculating called marginal emissions, where they're not actually looking at the power that the miners are using. They are doing this really used to tear calculation, assuming the miners are adding new load to the grid, and trying to ascertain what a,

additional sources of energy would have been needed to support that new load and it's always thermal. So you get a weird outcome where you have miners that are maybe locating and consuming power from the Texas grid, which is strongly renewable. They might be co-located next to a wind farm or nuclear plant or a hydrodium. And they're still being alleged to be 98% non-renewable according to this methodology, which I don't think is actually the standard. So tapping out on that, also, the article makes it seem like miners participating in demand response, which we have covered at length on this show. We have like 12 episodes on this stuff, the mining miniseries.

They characterize that as somehow bad, even though these programs are created by the ISOs, by the entities managing the grids as a way to stabilize the grid. And it's basically a form of insurance that the miners sell. to the grid operators so that the grid can handle, let's say, more instability from renewables, things like that. The New York Times characterizes that as bad. So for that reason, I'm tapping out on this article. Some of the Twitter response to this was really funny.

People talking about just the impact of the New York Times physical facility in New York and how many trees are destroyed every year by printing the physical paper, how many delivery men are putting emissions into this guy. why doesn't the New York Times just go all digital? Why don't they do that? Yeah, it's a good point. There was another funny subplot here, which was they had this drone footage of Rockdale, Texas, which is where some miners are. And it looked very hazy in the drone footage. And so it seemed like the New York Times was trying to make it appear that the Bitcoin mining data centers were themselves, like emitting pollutants, which is obviously not how it works. And then there was a ton of investigation. by some Bitcoiners into whether Rockdale is ever actually hazy because it's in rural Texas and it's basically, it's very clear is the TLDR on that. And so there's an allegation that the New York Times doctored the videos and the photos accompanying this article to make them look polluted.

So that's an ongoing investigation. I think there's actually been forensic experts that have been hired to, look into this. Did the New York Times doctor the photos to make Texas look polluted to make the Bitcoin mines look bad? There's a blockchain use case here. So there's a company you're familiar with called a testive up in Boston here. And the idea is that what if every time a photo is taken on a device, you can timestamp it and you can authenticate that it's a legitimate picture. And if you're able to do that, then you can tell if a photo has been tampered with.

And so if a photo goes out, you can tell whether or not there's been a Photoshop on it. I think this is a great use case for a public blockchain to just notarize that record, put that hash onto a public chain. So then you wouldn't be having this conversation. You'd say, all right, yeah, this is a clearly doctored photo. It's not an original. They can't prove that it's an original. Yeah, I mean, that's actually true.

So people did. So great use case. First of all, blockchain fixes this. Second of all, the New York Times did it emerged alter some of the color balance on these photos. Now, the question was, was that malicious or were they just editing it because they have an editorial style? But they certainly did play with the color balance on the photos. That much is clear. And yeah, you can imagine a system where the device that is creating the image is attesting to it.

You get a hash. Then you know that's the original. All right. We need Apple to do this. All right. Here's one for you, Matt. Hong Kong as another domicile for crypto startups, it appears to be getting friendlier over there. And even Hong Kong banks are reportedly being encouraged to service local crypto companies tapping in or tapping out.

I think I will tap in on this. I mean, we have a lot of firsthand knowledge here. We're talking to startups that are in Hong Kong that are saying that banks are onboarding them very easily, that they're being told to work collaboratively with startup. So it just seems like we have firsthand evidence that this is happening. I don't know how long that will last. I am very interested to see what China retail has to do with this picture here. So if it really does open up in June and you can start to trade retail crypto in Hong Kong again,

will this be a situation where people in China are able to access those markets? It's, I mean, something's happening there. It's unclear what the political motivation is, but there is definitely startup activity in Hong Kong again. All right. So that's top in and top out for the next episode. Feel free to hit us up on Twitter and suggest new topics. If this segment proves interesting, we will retain it. That will be our new segment.

So definitely contribute to that one. I think that might be it from the news front. As we wrap, we do have a Castle Island announcement. We're hiring. So we're looking for someone to join our investing team. Ideally looking for someone with one to three years of experience out of undergrad, maybe a background in something quantitative, consulting, banking, help us out with our investment process,

got to be passionate about the public blockchain ecosystem, got to be willing to be talked about and maybe mocked occasionally on this podcast, I think. Just looking for all-around good citizen. If that's you, hit us up, John. at castle island. VC. Yep, hit us up. All right, I think that is it for the week. We'll be back with a fun episode on Monday.

Everybody have a safe and healthy weekend.