Open Book with Anthony Scaramucci - Crypto is Bigger Than Just Bitcoin with James Diorio & Jake Ryan

Episode Date: December 5, 2024

In this conversation, Anthony hosts James Diorio and Jake Ryan, authors of 'Crypto Decrypted'. They discuss the fundamentals of blockchain technology and the importance of understanding digital assets. The conversation delves into the significance of regulation, environmental concerns regarding crypto, and the cyclical nature of the market. The authors emphasize the transformative potential of blockchain and the need for appropriate regulatory frameworks to foster innovation in the space. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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the written word, from authors and historians to figures and entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe, wherever you get your podcast, and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know, I can roll with the punches, so let me know. Anyways, let's get to it. Okay, so joining me now on Open Book is James DeOrio and Jake Ryan. They are the authors of Crypto Decrypted, which is a great book. It's debunking miss, understanding breakthroughs, and building foundations for digital asset investing.

And Rick Edelman, a good friend, wrote the forward on this book because I'm dropping my microphone. Awesome stuff, guys. I really enjoyed the book because it lays out in a really easy to understand format what everything is. What is an NFT? What is the blockchain? What is a layer one technology? It's all here. And so all you have to do is buy a copy of this book and you get it all. Okay, what is digital scarcity? I mean, to me, when I read the table of contents before I started the book, That's my first thing I always do, read the table contest, see what the hell's in the book. I said, all right, these guys are answering the questions that people want to know. Even people in our industry would benefit from reading your book because they pretend that they know things that they don't, myself included.

I really didn't understand the whole NFT marketplace until after I read crypto decrypted. So let's start with the two of you and your background. So, Jake, you go first, tell me about your background, how you met James, and then James, you tell me. Yeah. I know your background, but I want my viewers and listeners that hear your background, James. But you go first, Jake. I almost called you Jack in the introduction because I was thinking of Tom Clancy. Yep. And, you know, you know, I've gotten that one. And I've gotten the, you know, Jake Ryan from 16 candles. So all good weapons is, good, good movies. Yeah, my background, I got a degree in computer science from the University of Texas at Austin. I focused in artificial intelligence. I did some research work. in the field of AI around using neural networks for computer intrusion detection. I went out and got to do, my first job was with MCI, which doesn't exist anymore, but it was a S&P 100 telecommunications company. And then started a consulting firm in the early 2000 aughts and did that for 15 or 16 years.

I started to get into angel investing and venture capital in 2014. I worked as a mentor with a venture firm out in L.A. I did my first blockchain venture investment in 2015. I bought Bitcoin for the first time in 2016. And then really thought about, you know, one of my passions was investing. And so, you know, venture capital is a lot about pattern matching and about understanding what's about, you know, what's going on and some trends and investment themes.

I did a lot of trading just for myself. in stocks and options. And so we had, James and I had been going out with the hedge fund manager for dinner once a month for many moons. And he said, you know, well, you really understand this industry and,

you know, you have some good, uh, returns in history where you could, you could, prove that you could, uh, you could invest in trade.

And so started a hedge fund and, you know, crypto hedge fund in 2017 and 2018. And, uh, James wasn't a, started out in his visor and you can hear about him. Yeah, go ahead, Jake.

Yeah, my story is similar. You know, I computer scientist and was a technologist the first part of my career, but really moved into becoming an operator. So built five businesses, bought two, sold to. And, you know, Jake and I worked together originally, you know, around the year 2000 and kept in touch for that period of time. And how I got here is I never expected to be in this space. But in 2016, Jake said to me, Jim, you need to go buy some Bitcoin.

And it was $674 a coin. But I was way too smart for that. I looked at it, and I didn't understand it. And I said, Jake, this is nuts. You're nuts. Good luck with your crazy crypto thing. And when I sold my business in 2017, I said, gee, maybe I'm nuts. And maybe it's me that's the problem.

So I took a year and I went all over the world. I went to conferences in Dubai. I was in the EU. all over the U.S., Toronto, and I digested everything I could, and I became convinced of two things. This technology was going to absolutely change the world, but people didn't know how to explain it. And I would go to conferences, and people would use all the right buzzwords, but I'd say, what does that mean? And they couldn't really unpack it. So ultimately, this led to becoming an advisor for Jake and then coming up more with the fund and growing the fund with him.

but that's what led to, you know, crypto-decrypted, which is a sequel, not a sequel, but the second book after Jake's first book, Crypto Asset Investing in the Age of Autonomy, designed to explain this. The first book is almost like a textbook. The second book, Wiley said, could you write one for humans? So we kind of wrote it, I love that you have your mom at the end of the podcast. We wrote this for our moms. We wanted our moms to be able to understand this space because I almost missed it. Because I just didn't get it. And this is going to touch everyone on the planet. And we want people to understand it because this isn't going anywhere. You know, as a technology, obviously there's an investment opportunity, but it's a technology. It's going to shape everything.

Well, first of all, I put your touch with my mom. She'll never understand Bitcoin just so you know. She barely got her off the rotary phone. She does have a touch phone, but it's like one of those wall units that you would remember from the 1980s. You know, Alex Keaton used it in family ties. but I'm with you but I want to give you each a chance to make the elevator

pitch though because you know why why would anybody need I mean I know the answer but I need you to give the answer why would anybody need a hedge fund why don't just buy Bitcoin and go long Bitcoin or long Ethereum and shut the lights out for five years

yeah sure I think we tell RLP is definitely buy Bitcoin you know we think Bitcoin is great. Bitcoin is sound money. Bitcoin will be at the root of what we call the autonomous economy. But money is required but not sufficient. There is a technological revolution that we've just started. We've really completed the age of information and we're going into a new age, what we call the age of autonomy. And it comes by through a cluster of innovations. IOT,

artificial intelligence, robotics, and blockchain. And I would say that, you know, IoT creates a massive amount of data. AI can be used to synthesize that data into knowledge. Robotics use that knowledge in the physical realm to generate economic activity. But it's really that blockchain is going to be able to use that knowledge to generate economic activity without human intervention. And that really is the moat or the competitive advantage. in this new technological revolution. In the age of information, it was about getting specialized knowledge.

It was about if you'd become a lawyer or a podiatrist or a computer scientist, you had specialized knowledge, and you could turn that into competitive advantage and generate an income. In the next technological revolution, in the age of autonomy, it's really about building autonomous operation. We have knowledge now democratized with things like chatGBT. Anybody can write a program with chat GBT if you go and use it for a few iterations. And so what's going to be the compelling technology in this technological revolution? And you need to be able to build autonomous operations.

And that's what is the innovation stack is what we invest in. And so right now we don't have mutual funds for that yet. And so if you want to take a diversified fund approach, hedge funds are your opportunity to do so. And I'll add on to that really quick is, you know, innovation is where wealth is generated. We look at Bitcoin as a wealth preservation asset, much akin to gold, right? You know, Paul Tudor Jones just came out with another endorsement. You've got BlackRock and Fidelity and all these guys are saying, hey, this is a gold that's better than gold. And Bitcoin's gone from a penny to, you know, $6.9.

thousand, a 69 million percent gain. We're not going to see that again. We'll see gains, but not at that level. But the innovation stack is where you can get real multiples. So that's what we focus on, and we think the real opportunity is. And it's based on, as Jake said, the age of autonomy thesis. But here's what's hard. There's 10,000 different crypto assets out there. How do you know what to invest in? How do you know what you want to jump into? And then once you do, candidly, do you have the stomach to ride it through? Because, you know, we're dealing with markets that are volatile, right? So we look at the window and look at how these things are going to grow

and look at the opportunity to take advantage of the overall innovation stack and, you know, provide that value to our investors. Okay. When I sell my business, I want the best tax and investment advice. I want to help my kids and I want to give back to the community. Ooh. Then it's the vacation of a lifetime. I wonder if my head of office has a,

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People still don't largely understand blockchain technology and what it is, right? Companies are adopting, but it's still very, very young. It's like the dial-up modem age still of this technology. Okay, I mean, you know, obviously, I agree with everything you're saying, but I want to give you a chance to say it in your own words. I think that the great thing about the book is how clear it is. Okay, so I want you both to give me an example from the book, and I want you to speak with the clarity, frankly, that you speak in the book.

And so let's talk about something that nobody understands, okay? We'll start with you, DeOrio, okay? What is a Byzantine general, and what is the Byzantine general's problem? Okay, perfect. This is the thing that nobody's talking about that everyone should talk about. And this is why we wrote the book. There's a lot of books on how and what we wanted to write a book on the why. Why does blockchain technology matter? So it matters because it solved an unsolvable computer science problem. And that's called the Byzantine Generals problem. And it was a top 10 unsolvable computer science problem. And so it says this. You know, and it's got a scary name. Byzantine means you'll never understand it, but pretend it's really simple. It's actually, it gets a bad rep. I've got 10 generals, you know, 10 generals, and they're going to attack a city. If they do it together, they win.

If they don't it together, they lose. That's a pretty easy problem, right? The question is, how do you do it without anybody in charge? So how do you get peers to work together without someone calling the shots? How do you know that the communications they send to each other are reliable? How do you know that they can act in concert? And normally, in the digital world, that's never been possible. You've always got a counterparty.

Your money says whether you can, excuse me, your bank says whether you can send a wire, or PayPal says whether you can send money. Or a video game says whether you can actually use the magic cape or, you know, or something from the game. And that's not how we work in the physical world. If you were sitting right next to me, Anthony, this is a $20 bill. I could hand this to you. you can take it.

I pulled it out of my pocket. I hand it to you. There you go. Take it. It's yours. And you're done. You don't have to ask the government, your state, your business partner, your wealth manager. We can just do that.

We can transact in the physical world. And now we can do that in the digital world. I can have a digital thing. I can prove it's unique if it's unique. And I can transmit it to someone else just because I want to without the inner. of the third party. It's frictionless and it's peer to peer. And this is why blockchain matters. This is what makes everything possible. And the reason we talk about this so much is a lot of people are scared of the space, but once they understand this innovation, they see what's

happening and there's an opportunity here. Now, again, the problem is, as I mentioned earlier, is we're in the dial-up modemage. Remember back in the dial, you unplug it from your wall, plug it into your modem and two minutes later you get some stream of data and you get that who knew that that would involve involved into the phones we carry today or the you know the um smartphones that we have today everyone wants to get that in blockchain today but we're still in dial up modem age you know jake you this is a part of your history right yeah i mean i can just remember in the the mid 90s working for a isp people would call in from all country of of uh Texas saying, I just bought the internet. Can you help me, you know, get connected? And, you know,

we would have all these problems with connectivity in the internet age back then. But we still could envision a PCS or personal communication system or personal communication device. And we thought, you know, we'd be able to stream movies and all these things that we could do. But we couldn't do it for another decade, right? It took that long before we got the iPhone or a smartphone. You know, we had Blackberries, but really the iPhone was not the same mark improvement. And so that's where we are today, where we can envision what the future is going to be like, but we're still dealing with, you know, technical constraints. And it's just all apart of the adoption curve.

It just takes some time. So I want to be the skeptic now. I'm 60 because I actually am 60. and I'm a blockchain skeptic. I'm a traditional finance person. And yeah, the Byzantine general sounds cute and you did a great job of explaining it. But really what you're talking about is just financial blather. It's a mathematical blather.

It has absolutely no use cases. It has absolutely no. It's not worth anything. Okay, good. I respond to that. Okay. So when Uber came out, the Uber. I just have to point out that I don't believe any of the shit that I just said.

But I'm trying to, okay, okay, I need you to respond. You gave out the straw man. So when Uber came out, they came out with a new business model. And it was a different than we had been doing business prior before. No question. We'll call prior businesses called pipeline businesses, where they might have owned either the sales or the demand. Like if you were a hardware store, you owned a bunch of supply of hardware, but you didn't own the customers, right? It was a pipeline business.

And what Uber did was to come in and provide a different type of business, a two-sided marketplace where they own both the supply and demand and created a marketplace where they could meet in real time. I have a bunch of drivers and I have a bunch of people who need to go places. And they created the most efficient business model. And that business model has an unbelievably competitive moat, right? You know, many people have tried to break into, let's say, Facebook, right? Google Plus came out. It had better technology. But Facebook was able to keep on all of their users because everybody had already

uploaded their photos and they didn't want to convert to another network. We call those network effects. And so Google did not win. Facebook continued to win. Even when they bought Instagram, they would fight Snapchat because they were able to come out with, you know, mimicking the same functionality. that Snapchat had, but they already had the network effects. And so this type of model has revolutionized business and operations.

Well, tokens are really just efficient two-sided marketplaces. They can generate a protocol that allows supply and demand to come together in a real-time market, and that's the most efficient way to build an Uber company in the few. all of these Uber-type companies, these two-sided marketplaces, are the most efficient way to generate both the production capital and financial capital of that company is through a token. And so many services are going to be delivered on this. I'll give you one example. There's a token called render. Render allows for if you have a smartphone and you have some GPU power that you'd like to give to the platform.

you can rent out your GPU power, and render will aggregate millions and millions of phones and computers and GPUs. And then users can use the render token and use it to maybe get a lot of compute power to generate training for an AI agent or render a metaverse that takes a lot of GPU power. So they can do that within this token structure. You know, they don't need a storefront and board of directors and all these things to deliver this functionality. It is the most efficient way to deliver a two-sided marketplace. And in the future, when autonomous operations become the competitive advantage, this is going to be the mechanism and vehicle that allows business transactions to happen in the most efficient way possible.

I got to carry you around with me, Jake. Okay. I feel like I just going to pull the back of the string in your back and let you rip like that because I think it's a it's very solid explanation. James, let me turn to you for a second, okay? I'm going to hit you with three questions at the same time. So give me three different paragraphs. You ready?

Yeah. What's going to happen in regulation for crypto? Okay. Could regulation still kill it or is it beyond being killed at this moment? Is crypto bad for the environment? and are we in a crypto bubble? Okay. Got it.

So perfect. So regulation. We need regulation. You know, we, no, regulation is not going to kill crypto unless we get regulation that is designed to kill crypto. The state change that's happening right now is, look, this is an innovation stack. And, you know, part of the reason people are still having a hard time getting their hand around is we call them cryptocurrencies. I hate that word.

They're not all money. They're technologies, as Jake mentioned, and they can do different things. We need regulation that's appropriate for this space, right? You know, we had the, you know, Congress passed the, you know, the Joint House bill to overturn SB 121, and then it was vetoed by President Biden. And that was a mistake. That was movement that was going to go ahead and allow banks to custody this. We need to empower our institutions, our banks, our businesses to use this technology.

And here's the issue, Anthony. If we don't do this, the U.S. is going to fall behind as an innovator. And that's what's happening now. We need to get individuals in office who are going to embrace this or the U.S. is going to fall behind. And we can't afford to fall behind. What's going to happen is our thought leadership will leave the country. It'll go to other places where it is regulatory-friendly. So is it going to kill it?

If we set it up to kill it, it will. But we turn that corner. We need the right kind of regulation to promote innovation. And we've always done it as a country. And it's time we do it again. And I think we're finally getting to that point. So that's very exciting. All right.

So that's my spiel on regulation. Okay. And by the way, we've got Fit21 coming up. We've got other bills. We've got things happening. And there's a lot of senators who really are going to make this happen. Go to the environment. So the environment, a lot of people talk about, you know, and that's one of the big shell games, that this is really, really bad.

Every new technology, right, is going to come forth and it's going to have some type of impact. The Bitcoin blockchain is very energy intensive, but it still uses less than half the energy used by the banking industry or the gold industry. It's kind of one of the things that we like to talk about as a shell or is kind of a strawman argument. the reality is that this is going to move us to being morphic. Necessity is the mother of invention. Elon Musk was pro-Bitcoin, that, oh, my gosh, it's bad for the environment. I'm anti-Bitcoin. And then, right, he formed the Bitcoin Energy Mining Council.

Well, what's that about? That's about getting into renewables and using different types of energy and driving different types of energy. We've got hydroelectric. We've got flare gas, which is used for mining rigs. we've got wind. And being able to do these and have mining operations in different areas where they can be decentralized will actually promote getting new types of energy into the world. So we think it's actually going to drive forward the innovation.

And by the way, just about every other blockchain out there is not the energy suck that Bitcoin is. You know, the Bitcoin blockchain is a proof of work. A lot of energy is expended. you know, Ethereum, proof of stake. Other layer ones, different consensus mechanisms that are not so energy intensive. So we think it's going to really be progressive and make some change. So that's very important. By the way, one other thing interesting, look what's happening with energy right now.

Microsoft is lighting up three-mile island again, right? Because the energy that's going to be required for AI, for all of these things, for our data centers, is going to be staggering. So we have to get to new levels of energy and we're seeing it. And that's not even Bitcoin or blockchain related. That's AI related. So we're seeing this happen across the board. All right. And that was, what was your third one?

Oh, is this a bubble? No, it's not a bubble. It's a cycle. People have been, there's no Mark Twain quote. You know, the rumors of my demise have been greatly exaggerated. You know, someone thought he died. They published that. He responded with a telegram.

People have been predicting the downside. of this since it started. And the reality is now it's been embraced. It's been embraced by the biggest asset managers in the world. BlackRock manages $10 trillion in assets, right? 10% of the world's investable assets. They're behind it. Fidelity is behind it. You've got 83% of the Fortune 500 are adopting blockchain technology. So that's very interesting. You've got Citigroup, which has an FX products that are launching on a blockchain. Franklin Templeton is launching a money market on blockchain. And then you've got companies like Starbucks and Walmart and FedEx, which are all experimenting with it. So the technology is getting adopted. What we need to do is realize that this

is an innovation and the innovations take time to mature. It's not 10,000 types of monies and we need to pick which one is going to be the next big money. Forget about that. This is an innovation stack. We need to go forward. And the thing that's interesting about this is we've seen consistently, cycles. We've seen these cycles go and we're entering another one right now. And the big driver for this is the monetary cycle. The big thing that we're seeing right now is liquidity being pumped into the system. We just had a rate cut and they've seen a very clear correlation to how these markets move with liquidity. Right. We're seeing global liquidity. We're seeing with China, right, pumping money into the system. We're seeing rate cuts across the world. So as we enter this loosening economic cycle,

this should actually drive the next phase of the run. And we're expecting that and kind of go till, you know, call it roughly February 2026 is kind of our target right now. So, and that's going to be the next bull leg. Now, nothing goes up in a straight line. It will, we will have a pullback. That will probably happen when we see quantitative tightening happening again. So we've seen direct correlations between what's happening with,

with the macro cycle, with the monetary cycle. And, you know, everyone wants to bring doom and gloom. Things go up, things go down. What we're looking at is, were we going to be in 18 months? And if I reasonably believe that's going to be a move forward, by the son just came out here, I look very dramatic on camera. If we think that's going to be a great move forward in our markets, which we do, it's a great time to invest. But the point is, we're past the point in no return. This is technology that's changing the world.

It's not bubble. It's not tulips. It's not seashells. It's innovation. has always driven the world forward. I would just add one last thing on that real quick. It's just that there's two cycles, the economic cycle and the monetary cycle. And crypto assets are extremely reflexive assets.

They go up a lot and they go down a lot. And so they're more tied to that money cycle than the economic cycle because they have to do with scarcity. And so when you pump more money in, that's when these assets really go up. And that's the thing to take note and to manage. It's about the money cycle. Okay. So we're at the last couple of minutes of the podcast, okay? And since you guys have listened before, because James mentioned my mom, she always comes on at the end.

I have five words. So I want you to give me, I'm going to say the word, and each of you give me one or two words. It's like a raw shot test, okay? Right? Ready? Yep. When I think of the, when I say the word investing, what do you guys think of? Who goes first?

Go. I'll go. All right. Uh, diversify. Okay. Putting, um, current, um, spending for future gain. Okay. I say the word regulation.

Balanced. Social contract. Autonomy. Uh, running. That's a few. Go ahead, Jake. Without human intervention. Okay.

Future. Future. Okay. I say the word blockchain. Innovation. Peer-to-peer transaction. Yeah, is that like security? I think the word security. All right, I say the word crypto. It means a lot to different people. What is that? An asset that is secured by cryptography.

Its truth or integrity is secured by its cryptography. What do you say, James? Liquidity. All right. The fact that we've got liquidity in the digital age is going to change everything. All right. Well, the title of the book is Crypto Decrypted. It's debunking myths, understanding breakthroughs, and building foundations, the digital asset investing. And I got to tell you, it's a great book. Learned a lot. Proud to be part of it with you. And I wish you great success. And you see, I'm right on time here because the patty wagon is coming to take me away, James. All right? All right. And I'm just asking them to take me voluntarily without the stray jacket. I appreciate the way until we finish the podcast. That was very kind of them. Right. They were timing it.

Right, exactly. I am Anthony Scaramucci, and that was Open Book. Thank you for listening. If you like what you hear, tell your friends and make sure you hit follow or subscribe wherever you listen to your podcast. While you're there, please leave us a rating or review. If you want to connect with me or chat more about the discussions, it's at Scaramucci on Twitter or Instagram. love to hear from you. I'll see you back here next week.