TFTC: A Bitcoin Podcast - Tales from the Crypt #16: Ari Paul

Episode Date: March 6, 2018

Join Marty as he sits down with Ari Paul to discuss a wide range of topics including; the token economy, the range of disciplines that someone investing in this asset class must have (at the very least) a grasp on, how little we know, and how important (not) knowing Satoshi is. You can find out more about Ari by following him on Twitter @AriDavidPaul.

all right what is up freaks welcome back to tales from the crypt it's your boy marty bent we're in here at an off night usually here fridays or saturday mornings friday nights or saturday mornings excuse me we're in here on a monday night in flat iron manhattan uh for a very special guest. I'm very excited for the conversation we're about to dive into. I've been following this man on Twitter for years now. Very fanboyish with the sort of brand you've built around yourself as an investment sort of, I would say, not authority, but I don't want to say authority, but your thoughts around the investment thesis of Bitcoin and the expanding crypto landscape. I've been very insightful in my opinion. I'd like to welcome all you freaks,

or excuse me, I'd like to introduce all you freaks to Ari Paul. Ari, welcome to the podcast. Thanks for having me, Marty. Thanks for coming on. I know it's a man whose attention is in high demand right now. I'm very fortunate to have you in the studio. And I appreciate you coming by. For those of you that don't know, Ari is the chief investment officer at BlockTower Capital, one of the one of the emerging crypto hedge funds in this new nation emerging asset class. Yeah. All right. So thanks for, again, thanks for coming in the studio tonight. I guess we're going to start out. How did you find Bitcoin? It's the tales from the crypt. We start out with

the tale. What's your tale? So in 2009, I was a trader at Cisco International Group and the Fed was printing tons of money. The ECB was printing tons of money. We were in the throes of the financial crisis, and I didn't expect inflation anytime soon, but I was already thinking that eventually I'm going to want to get out of fiat. Eventually I'm going to want to get into assets that can't be depreciated by central banks. So that had me looking for something like Bitcoin that couldn't be depreciated by a central bank. The next avenue was I'm not – I wouldn't call myself a cypherpunk or a libertarian, but I had relatives who had to flee Nazi Germany, some successfully, some not.

And I think anyone who has relatives who had to flee, whether it's Nazi Germany or Maoist China or Syria or the Khmer Rouge, there's some kind of deep-rooted fear almost that while I'm very fortunate to live in the United States, a very free country, I don't take it for granted. And even in the U.S., it's a concern. But certainly for much of the world who doesn't have that luxury, having something like Bitcoin where you can store your wealth in a way that cannot be arbitrarily seized by a corrupt judge, a corrupt politician, I want that to exist. I frankly don't care if it's Bitcoin that provides that service, and I think of it as a service, but I want people to have Swiss banks in their pocket that is more powerful than any judge or any government. And then the last was seeing kind of Bitcoin start emerging as an investor and as a trader. It's an incredibly inefficient market, and it's an asset class that no one knows anything about. So it's incredibly intellectually rewarding to be able to try to puzzle through what's this worth? How do we think about this?

yeah my mind that's the whole sort of that's that's what's drawing me in is the fact that we're all learning together and that's the beauty of this space right now you have old cypherpunks who've been working on this technology for decades and then you have kids like me who are comparatively stupid but are are discovering this technology as well and uh similar similar films bitcoin in a similar way like in the around 2000 there i didn't find it till 2012 but around 2008 2009 i was in high school in fall of 2008 and luckily was taking an economics class and had an adept teacher who sort of said hey this shit is uh this is not the way it's supposed to work in the long run um so i went into a college with a very know your enemy

mindset and studied economics and fell into Bitcoin that way. I think it's very interesting how different people find Bitcoin in different ways. You come from a traditional financial fund background. You were actually the head portfolio manager of the University of Chicago? No, just one portfolio manager of several, of a small team. That's one thing I found most interesting coming from a finance background, was seeing you on Twitter and you were working for the endowment fund and pumping Bitcoin and cryptocurrency as an emerging asset class and encouraging traditional financial institutions to invest in this class to an extent. Obviously, definitely manage your risk when entering these markets,

but that's what sort of drew me to you, was you at the University of Chicago, sort of The bastion of, would you say the bastion of Austrian economics? You know, it's interesting. UChicago has both Eugene Fama and Richard Thaler. So Eugene Fama is kind of the father of efficient markets. And then Richard Thaler is the exact opposite, kind of the father of behavioral finance. And they're friends. And their offices are, like, right next to each other.

So UChicago kind of gets, you know, is a really amazing place to study or practice economics and covers the spectrum. But at the endowment, we explicitly did not believe in the efficient market. I mean, we really shouldn't have jobs if we did. And what was that like first bringing up Bitcoin and sort of an investment thesis meeting? It was mostly frustration in the sense that I wasn't naive. I knew the bureaucratic process. I knew all of the challenges with getting something as new as that into a portfolio. I thought it would be a year-long process, frankly.

What was frustrating was just how quickly. So, prior to 2016, it was almost uninvestable. You know, Bitcoin, I mean, at the start of 2017, all cryptocurrency combined was $18 billion. UChicago's endowment was $8 billion. So, this, you know, wasn't really an asset class three years ago. It was tiny. I mean, I don't want to throw out a random number, but I think, you know, in 2015, maybe it was $4 billion in total value, right? So, it was only really in 2016 that I started thinking about this as something UChicago could and should invest in.

And I tried to start laying the groundwork. I held some kind of voluntary meetings with my colleagues and trying to educate, just provide background information without pushing on anything. And then, you know, end of 2016, first half of 2017, everything took off like a rocket. And it was very frustrating watching that and seeing, you know, I and a few of my colleagues who I convinced to invest, we were all making tremendous money for ourselves. And that didn't feel great, right, because I wanted to be a good fiduciary. I wanted to serve UChicago. and I had done everything I could to have the university benefit from this 10x increase in wealth, right? I mean, in six months, an investment in almost any, I mean, in any large cryptocurrency,

forget it, maybe you didn't get Ether, but even in Bitcoin, you outperformed the rest of your portfolio over the course of a decade. And to watch us miss that, and to watch not just us, but to watch every endowment miss that when it's kind of right in front of you is very frustrating. You can't really blame the endowments, though, right? Was there an I-told-you-so moment where you looked back retrospectively and were like, if you had listened to me six months ago, we could have funded this endowment for the next decade? I mean, I try not to be a jerk. Certainly in my head, there was a point where I joked in a meeting at the very start of 2017 where we were having a discussion about how are we going to hit our 7% return bogey? How are we going to hit our target return if we think every asset class is overpriced? And so a reasonable target return assumption given our portfolio was maybe 5% or 6%.

And the way those are constructed, you come from a finance background, it's this long-term idea of current valuation. It's not saying what will next year give us. It's more like over a 10 to 20 year time frame if things play out the way they normally do. And so we're like, okay, our current portfolio, we think maybe it'll give us 6%, 6.5%. And really we kind of need for the university 7, 7.5%. How are we going to get there? I joked, put half a percent of the endowment in Ethereum, in Ether. And that was when it was at $10. And so I didn't expect Ethereum to do what it did, but over the next six months, it went up 20x. And so literally that half of a percent of an investment would have outperformed the other 99.5% of the portfolio in aggregate, right? That

half a percent would have returned more dollars to the endowment than everything else we invested in combined. And look, the reality is that there's some hindsight bias there. I didn't know it was going to be a 20x. It wasn't a risk-free investment by any means. But on the other hand, I do think that fiduciaries, endowment investors do have a responsibility to think critically, to be intellectually curious and to overcome their own aversion right so where does alpha come from as an investor it can come from um actually let me take a step back where does return come from so like traditional academics will tell you it comes from taking risk right from taking equity exposure from taking credit exposure uh maybe illiquidity if you're willing to lock your money up you should

get a return for that and where does alpha come from above that and um it's not kind of obvious like like eugene fama would say there's no alpha at all you know some academics would say that It just shouldn't be alpha at all. It should all get competed away. Obviously, at UChicago, we didn't believe that. So we would ask ourselves the question, where should we look for alpha? And the answer would often be, well, maybe we should look in emerging markets. Or maybe we should look in frontier markets.

We probably want to look in places where no one else is looking, places where capital is under-allocated, where there's less competition. And so that line of thinking that is really part of our job should have led us to cryptocurrency, I think. because cryptocurrency was really clear what the barriers to entry are. It's really clear why smart people are not in the space. Things like custody risk. You have all these idiosyncratic risks, these risks that are very serious and that irrationally prevent people from investing. I say irrationally in the sense that let's say you invest in a crypto fund.

That fund currently self-custodies their assets almost certainly, and that means they can steal your money. That's a very real risk. but it's a risk that you should be eager to try to underwrite or consider underwriting because it's uncorrelated to the rest of your portfolio so let's compare that to your traditional fund which uses clearing houses and brokers to sort of take on that custody risk for you to a certain extent correct yes yeah yeah so uh in a traditional fund if they invest in equity that equity is is stored with a custodian and so and same with cash and basically you're not a fund's not gonna be

able to steal equity from you or U.S. dollars from you. Even, I mean, just taking a step back, U.S. dollars are easily traceable, large amounts, right? If you wire money out of a bank, you're probably not getting away with it. You can wire it to the Cayman Islands, that wire's traceable, and it's even reversible. Cryptocurrency, people can get away with stealing it. So, it's a very attractive target for thieves. People have gotten away with stealing it. Certainly. That's one of the beauties of, not beauties, it's one of the parts of the double-edged sword that is this emerging asset class it's asymmetric positive returns and then uh very very high probability comparatively to

being looted by uh by nefarious actors certainly there's a whole lot of ways to have a negative 100 return in cryptocurrency a ton of ways hey i'm gonna raise my hand here i'm raising my hands in the studio i i was uh i was on mint pal and mint pal got hacked and i got a lot of a lot of my crypto stolen back in 2014 or 15 14 it was uh may 2014 i think but that's one thing again like i said we're all learning together that's one lesson i learned early like holy shit like don't keep your don't keep your coins on an exchange make sure you know how to download a wallet how to secure private keys and that's another thing about the space that blows my mind is just how much it forces you to learn about so many different disciplines about so many different aspects of

of life in general when it comes to bitcoin it's a create it's a beautifully uh designed incentive incentive system excuse me that includes economics mathematics game theory i mean game theory falls under economics and then um computer science and cryptography and i think you and i coming from a finance economics background have a different perspective than the developers working on these protocols that come from a very, very technical background. So, they're more worried about the code, we're more worried about the economics, and it's interesting to see where these two collide out in the open in the debate space, which I would argue is Twitter right now, probably the best open forum for these debates. So, what would you

say about that, about the multiple disciplines that are sort of rolled into this asset class? That's definitely one of the reasons why there's so little, not just expertise, but even understanding, because to understand Bitcoin really is the intersection of all those things. You need to have at least a little bit of understanding of there's a good line that I'm not sure who said it first, but I heard it from Naval Ravikant, who said cryptocurrency is like a graduate 400 level course with prerequisites and all these different things. And it's very true. And I think the way I think about learning about cryptocurrency is it's kind of a spiral. So you first read about what a blockchain is, and it doesn't mean much to you, right? And then you read a little bit about the consensus mechanism, proof-of-work mining, and that doesn't mean that much. And you learn a little bit about maybe the transfers themselves or how Bitcoin is valued in the market or the market infrastructure, and that doesn't mean much. And you kind of go around in a circle, and each time you go around, you start connecting the pieces.

And what's amazing is if you ask someone what Bitcoin is or what makes it meaningful, there isn't any consensus even among the Bitcoin core developers, Bitcoin maximalists, Bitcoin investors. Everyone will give you a different answer, and some of them are meaningfully different. So is it a timestamping protocol? Is it a protocol where at its heart the purpose of the blockchain is for the world to come to consensus? It's a little bit like mechanical time. Is it a way for the world to come to consensus over a certain number of blocks of past? And maybe that's all it is, and that's incredibly valuable because it's the first time in history we've had that. Or maybe it's a proof of publication.

So it's a way of proving that some group has literally just agreed on some point of information at some point in time. Or is it a game theory solution to the Byzantine generals' problem? And is that really how we should think about it? Or is it money that can't be depreciated? Or is it a way to transfer information that's censorship-resistant? And some of those are compatible, but I don't think there's a right answer to that. And it's not that they're all correct. I think, like, in debates I've had with people, they'll say, no, it's not a timestamping protocol.

It actually isn't that good at that. Peter Todd was clamoring about that on Twitter the other week. I forget who brought it up, but somebody defined Bitcoin as a timestamping protocol, and Peter Todd had some words to say about that. That's hilarious. So I was chatting with Peter Todd in person two weeks ago, and that was exactly what I was thinking of. It was Peter Todd who was like, no, it's not a timestamping protocol. Peter Todd is brilliant, by the way. There's probably 200 protocol developers on the planet who actually can do meaningful protocol development.

And Peter Todd is certainly one of those and probably top decile among that group. Yeah, I remember being at a BitDevs meetup here in the city at Union Square Ventures where you just came from, actually. um and it was right after peter had double spent on coinbase and there was like a huge debate going on about that it was right after the uh the first hong kong agreement um when they when they agreed quote unquote to double the block size or whatever but that was a very interesting content or excuse me conversation and raise my hand here again i made myself look like a complete idiot that night so union square ventures you're looking out over union square obviously and you have that clock in the in the corner of union square you can see

it's it's basically just a running clock with probably 20 digits it's just the down to whatever the 16th decimal to the right of uh of of the time is and i looked at it it was 7 30 at night so it was 1930 blah blah blah blah and at the same time uh the u.s accrued debt national debt was around 19 trillion dollars so i thought i just moved to new york like a couple weeks earlier i had no idea where i was had no context of what this clock was i thought it was a debt clock so i'm sitting there nervous at my first like bitcoin meet up in new york peter todd's there somebody who i've followed on twitter been like oh my god this dude's smart as shit i hope i say something smart in front of him and i look out at the clock i point at it and i say hey how

prescient is this we're here talking about bitcoin we have a national debt clock right across right across union square from us and he looks at me dead in the eyes and say says that's a time clock and i just turned away and was like all right that's the last thing i'm gonna say tonight i walked to the corner and watched and listened to him describe how he double spent on coinbase so there's a lot of humbling experiences in crypto that was that was probably my first public humbling experience was being so dumb that i could not tell that the union square clock was a time clock and not a debt clock oh man i usually like to talk up how dumb i am and how uh often i say stupid things to like core developers but um it's hard to beat

that it's really hard to beat that i was happy to take that take that lesson early on when i was like 23 it was like all right all right you learn to talk less and listen more it was a good lesson to learn early um i guess let's jump into topical stuff i mean it was a huge day in crypto in my mind it doesn't seem like it today but i think we'll look back at what happened today and be like all right this is the first step towards huge consolidation within the space we had circle circle pay uh goldman sachs company by uh palani x an altcoin exchange most known for the troll box and their poor uh their poor support system um so this is a huge development for those you don't know palani x is a long time altcoin exchange you can go send your bitcoin or ether i don't

They haven't had Ether pairs, have they? I don't think so. It's been a long time since I've been on there, I don't know. Yeah, I haven't been on there in a while either. I'm sure Brian Kelly walked you through how to buy Ripple on it a couple months, if you were watching CNBC. Brian's a friend of mine and a great guy, and a smart investor, by the way. I knew of his segment, but I haven't actually watched it. I missed out on actually buying Ripple at the top, unfortunately.

That segment was a humblebrag, because he showed his, I don't know if it was CNBC's account or his personal account, but whosever account it was, it was a humblebrag, because on live TV they showed that they had 15 Bitcoin in the account, and they were trading for Ripple, walked you through. But, that's whatever. What happened today, CirclePay, which is very interesting, because about a year, two years ago, was it 2016, beginning of 2016, CEO of circle pay basically wrote off bitcoin so we will not be using bitcoin in five to ten years and then two years later he buys uh one of the biggest alt exchanges in the world in palaniacs uh it doesn't mean he's bullish on bitcoin at all if anything i could you could argue that it's he's

doubling down on his uh his his bet that bitcoin won't be around now in three to seven years um But beyond that, beyond Jeremy's personal thoughts, like the aspect of consolidation in the space right now is very interesting. So we have traditional finance, again, circles backed by Goldman going after sort of these nation exchanges. Whereas Poloniex is based out of how? They're U.S. based. They're U.S. based?

Unless they moved. I'm pretty sure they're still U.S. based. Are they? Yeah. I didn't know that. I thought Bittrex was the only U.S.-based one. I know Bittrex is Seattle. Poloniacs, I could be wrong.

I don't know if Polo did something fancy with their corporate registration. Certainly the people are U.S.-based. Yeah. But regardless if it's U.S.-based or not, it's raised some very interesting questions. Not only questions, but just the fact that companies are starting to buy each other within the space is a huge sort of tell that the space is becoming more legitimate. In some people's eyes, what do you have to say about Circle buying Poloniacs, if anything? I think that there's a few takeaways from it.

One is you had a lot of young companies like Polo that almost accidentally became giant. So no one expected the massive influx of users that totally overwhelmed their systems, that also Binance faced and Bittrex and all these exchanges became, some of them became bigger than Schwab, bigger than E-Trade in six months. I mean, Binance went from- Binances. I mean, they went from zero to bigger than E-Trade in six months, which is insane. And they didn't expect that. So one result you had was often bad order matching engines and bad customer support because they were just overwhelmed with new users and interest. You just couldn't keep up with that level of growth but part of it is um i think a lot of these young companies realize they don't know

how to run a billion dollar exchange right so you think about like mount gox was initially from magic the gathering cards and it kind of accidentally became the world's leading bitcoin exchange and and then kind of disaster followed partly because you know they weren't set up to you have a php back end securing money it's not yeah it's not really the wisest choice um so i i think we're in this interesting point in crypto where the people who are running companies are mostly amateurs. I don't mean that as an insult. I mean that as the people running exchanges are not seasoned exchange operators because seasoned exchange operators weren't launching crypto exchanges a year ago. So they're amateurs who very quickly built these massive properties.

They don't really know what to do with them. They're smart enough, some of them, to know they don't know what to do with them. And so Polo sold itself at a huge discount, a huge discount based on kind of cash flows it was a 400 mil that's that's the number i saw in the headline um and they were at least that the numbers i i don't know if how accurate these are but the numbers are being reported was like a billion in revenue um so a very very cheap cheap sale i i don't want to throw out numbers to your listeners that may be wrong but um that's a the reporting was that it was it was a massive sale a massive discount to what you would expect an exchange to be priced at based on kind of cash flows and run and revenue and it's because the team

leading polo didn't want to scale it. They didn't want to be running it anymore. They just wanted to cash out. So one thing it reflects is professionalization, right? So you're having more seasoned players, professional players come in and take control of these properties, whether the property is an exchange or a hardware wallet or kind of any type of asset in the space. It could even be websites. So you have something like bitcoin.com or bitcoin.org that are actually massively valuable now, which the person who bought it wasn't necessarily thinking about running a $50 million web property. Yeah, how much do you think Bloomberg paid for the at-crypto handle?

I don't know. They're running a, Bloomberg, that's another sign of the industry evolving, if you will. It's like, now all these news agencies have crypto-specific sort of verticals within their media companies, and yeah, Bloomberg's got the at-crypto handle. I'm sure they paid a pretty, excuse me, I'm sure they paid a pretty penny for that. But yeah, again, it's interesting to see how sort of legitimate actors are starting to move more and more into the space with authority. And we have Robinhood with how many people? Three million people online now?

Or they're about to give access to four million other users to buying and selling Bitcoin and Ether specifically, right? I think that's right for now. Yeah, for now. One question. I don't know if you can help me answer this. It's really been sort of a gray area specifically with Robinhood. Like, are you going to be able to take the Bitcoin Ether off of Robinhood and put it into a personal wallet? Or are you just buying claims on Bitcoin Ether that they own?

I've heard for now it's the latter, that you're not going to be able to withdraw. So, of course, a lot of the kind of cypherpunks really object to that, that you don't own Bitcoin, you own a Bitcoin IOU. Yeah. Which is pretty legitimate as a complaint, I mean, right? You're buying Bitcoin and you can't actually transfer it or use it. So that can lead to fractional reserve and fraud, and pushback against that I think is legitimate. But one other thought on Circle, one comment I heard reported, and I think it would be hard to really verify this, but Polo was in regulatory crosshairs. So they list a lot of assets that may be deemed unregistered securities.

And if you are an exchange that facilitates trading of unregistered securities, you're probably committing illegal acts that the SEC is likely to go after you for at some point. Another issue is things like money laundering. So Polo wasn't known for having the best KYC, AML-type verification of new accounts. I've heard from individuals who are grandfathered in that they just never had to provide ID, and they were able to move tens of millions of dollars through that. So Polo was in regulatory crosshairs, as are many other exchanges. I'm not trying to single them out. And something that I've heard is that Circle, before acquiring Polo, talked to regulators, and regulators basically said, if you acquire Polo and you clean them up, we won't go after you. So one of the things you're seeing is almost a laundering of these kind of questionable businesses that we're almost – I mean, meeting the regulation around anti-money laundering laws is probably literally impossible.

So every big U.S. bank gets fined for facilitating money laundering almost every year. J.P. Morgan just in the past year paid two big fines for facilitating money laundering from, like, terrorists and drug dealers. So it's almost impossible to comply with. And in the crypto world, of course, you know, these are amateurs without the massive teams of lawyers that J.P. Morgan has. So there's an interesting motivation here. Someone like Circle can come in and actually make Polo more valuable by kind of cleaning them up, and not just in terms of their practice, but actually in terms of wiping the regulatory slate clean. that's uh it's like a get out of jail free card hey sell it half your valuation and uh and we'll get you out of jail for free probably worth it in the long run probably worth that that haircut

that they sold for uh and so let's dive into that a little bit uh so regulation in this space very gray area right now extremely gray area uh how do you i don't want to say how do you see it evolving what in your mind would be the most responsible way for it to evolve going forward because you don't want to over-regulate too early, and obviously you don't want people getting scammed. You don't want BitConnects happening and stuff like that. BitConnect! But it is a delicate balance that you have to achieve at a certain extent.

What do you think that delicate balance is? How much is too much regulation too early, and how much is too laissez-faire for your retail investor? It's really, really tough. I think it's almost impossible to identify what's legitimate. I mean, there's some really clear frauds, right? BitConnect was a Ponzi scheme by construction. And you have some really explicit frauds.

But there's a lot. I mean, Bitcoin maximalists claimed Ethereum was a scam. There's a lot of things that you can't, you know, new economic models, new fundraising models, it's really hard a priori to say if it's good for investors or not, if it's good innovation or not. And that's almost part of the definition of innovation is that most people will look at it and not see the value. So I think it's really tough. There's a lot of legitimate gray area

where it's very hard to say, like, even is this a scam? Like, how should we think about that? So there are people who said, for example, that developers doing an ICO and giving themselves 30% of the tokens is a scam. I would actually argue against that and say you might not like it as an investor.

It might be unfriendly to investors. But if it's transparent, it actually incentivizes development. And I'm not saying it's good, but it's not a scam. It's transparent. It's just a fundraising model. It's a capital structure model.

So my point is, though, that there's kind of some legitimate disagreement over some of these structures. But at some point, you could push that structure enough where, well, what if developers keep 98% of the tokens? No one's going to invest in that except for the dumb retail guy who just doesn't know. Doesn't know what they don't know. Sounds like a lot of BitcoinTalk.org users in 2013, 2014 getting into pre-mined altcoins. So I think it's legitimately hard to come up with perfect regulation in the space. What always happens with new innovation is you always have a lot of scams. You always have a lot of harebrained ideas.

you always have a lot of capital gets destroyed. Same happened in the tech boom. And I think that mostly doesn't matter. So the amount, the size of the losses, the magnitude are relatively tiny. So you look at the size of BitConnect. I mean, all of cryptocurrency put together is $450 billion. A single major innovation to come out of the industry, just one. So if you think about like, if every single dot-com from the 90s went bust, but we got Amazon, Amazon actually created more wealth, then every single IPO that failed, lost. So similarly, if one cryptocurrency comes out of this boom, whether it's Bitcoin or Ether or something that doesn't exist yet, that is fundamentally transformative. Maybe Amazon's, I mean, actually, I would argue Amazon was

fundamentally transformative, but maybe Google's a better example. Something like search or social media like Facebook. If one good thing comes out of it, that's likely to overwhelm the bad things. And so I definitely would err towards the side of under-regulation. I would rather, you know, a couple more mom and pops lose their money. I don't want them to lose their money. I would rather them not. I try to educate. I try to help this industry self-regulate and be a good actor.

But I would rather 100,000 people each lose a million dollars, but we get our Facebook, we get our Google, we get our Amazon, than squelch that. And we're at a very dangerous point, I think, in regulation where things have become so much more mobile. So 50 years ago, people weren't going to change countries for the most part for a better regulatory environment. Even in the 90s, they mostly weren't. today we're seeing people move we're very aggressively so so and it's both the wealthiest so it's the tech billionaires the Silicon Valley leads move and it's the young up-and-coming who are confident in themselves it's the Vitalik's the people are gonna launch the next aetherium they will move to a

jurisdiction that is friendly to them and so the US if we if we have fundraising rules and regulation on crypto that are too unfriendly it's just gonna move elsewhere it'll move to South Korea or Japan or Switzerland Switzerland Yeah, definitely don't want to shoot yourself in the foot. And that's something that I'm worried as a U.S. citizen is that the SEC has been shooting a lot of warning shots across the bow of the industry, specifically in the last six to eight months. They have. So I actually don't think what they've been doing is terrible in the sense that they've mostly bifurcated. And they've basically said a crypto asset that didn't have a fundraiser is almost certainly fine.

So the head of the CFTC, Giancarlo, has been exuberant supporting Bitcoin, saying he wants his kids to buy Bitcoin. He loves Bitcoin. He was very, very, very impressive in that Senate hearing a couple weeks ago. Definitely. And then the comment is, well, if you're raising money and it looks like a security and smells like a security, it should be regulated like a security for the same reason that we regulate securities. So I actually don't hate that bifurcation. The real problem right now is one of the promises of cryptocurrency is it's a way to monetize open source development. So a problem with the internet is all the smart people and entrepreneurial people are working on Facebook.

No one's working on FTP or HTTP because you can't monetize open source. So part of the pitch of cryptocurrency is it's a way to attach a token to open source development and incentivize smart people to work on things that otherwise fall under the tragedy of the commons, things that otherwise we all want and need. We want the internet backbone to be better. We want HTTP to be better. But no one's willing to work on it because you can't get paid. So the problem is, if you don't allow for utility tokens, if you say that everything that raises money, even with airdrops, so there's even a discussion that maybe even airdrops are securities. If everything that raises money is a security and needs this very heavy-handed regulation, then you kill that entire area of economic innovation. So I think what we need, what I would want, is clear delineation by the SEC on what is a security that is fairly narrowly defined such that we can have utility tokens that are not securities.

um i really dislike gray area in regulation because when you have this gray area what it does is the good actors the well-intentioned actors the more seasoned veterans who generally have more to lose and are more concerned about the downside about going to jail about about getting a regulatory um you know uh penalty they stay away and who rushes into the space it's the charlatans the fraudsters and the people who are who care far less about legal issues and so when the sec deliberately maintains a gray area, they create an environment where that market is then dominated by fraud. They create that. It's like you only have room for fraud. And if there's almost desperation among people to invest, that means you're pushing mom and pop into fraud. Whereas

instead, let's say instead of a gray area, they just said, here's clarity. We're not going to regulate at all. You would still have the fraudsters, but you would also have the Mark Zuckerbergs and the Vitaliks, and you would also have the good projects. So it would be better to have clarity with no regulation you would have less mom-and-pop losses than what we have now the worst case scenario in general is ambiguous laws because then the law-abiding people stay away and the criminals kind of play there yeah so gray area without enforcement is kind of the worst of all worlds and that's kind of where we are right now yeah i would agree i would agree in that sense uh because between different sort of agencies bitcoin's defined differently like

we're about to it's about to be defined as money that could be accepted for taxes in arizona uh i believe florida defines it as a commodity no it's a currency in florida too you're schooling me on the state by state yeah yeah so state by state it's different definition and then uh agency by agency it's a different definition the irs will define it differently than the cftc will and it's very confusing like as somebody and i'm educated in the world of finance and sort of the way these these regulatory agencies interact with investors and investment funds and it's still at a point where it's like i don't know what's right and what's wrong like is it okay if i do this is it okay if i don't and that's why i've developed the huddle mentality it's like all

right you're good if you don't do anything and you just hold it and and keep it not moving then you're fine but again that gray area creates a lot of uncertainty that leads people to make i want to say leads people to make bad decisions it prevents people from making decisions that could that could overwhelmingly benefit them in the long run and that's something we have to figure out specifically here in the states and maybe somebody maybe some other country or state is gonna gonna beat us to the punch and just say hey we're we're not going to regulate it until we we can actually define what these things are. Because again, going back to what we touched on in the beginning, nobody knows what these things are right now in particular. They have

a slight idea, but there's no concrete definition of what these things are. The threat is retroactive enforcement. So that's kind of been the U.S.'s accidental approach. So the U.S. has just basically not enforced any security law on ICOs. The first ruling that I, I guess there were some exceptions about fraud, but like the Dow ruling in the summer, last summer was one of the first shots across the bow saying, these may be securities, we're going to kind of come after them. And the SEC has issued more and more warnings. But until, you know, just a year ago, they basically were hands off. The problem, though, is you fear retroactive enforcement. So even before the Dow ruling came out, like the SEC could today put

someone who ICO two years ago in jail, which seems very unfair, because the SEC had refused to give guidance. And so a lot of well-intentioned people are asking the SEC for clarity. They're saying, we want to know what's right and wrong. We want to play by the rules. Please give us clarity so that we can have a fair level playing field and so we can kind of obey everything. So the good thing is the SEC is moving forward on this. They are gathering information. They're very focused on it. It's going to take some time to play out. So they're probably in the next, I hear rumors that in the next few weeks, there's going to be some enforcement actions against ICOs. Those are only rumors um but eventually i mean the sec has said they're going to do that they said they're

going to go after more and more icos um so it's just a question of kind of when and how soon um and then some of those enforcement actions will be tested in court courts may strike some of them down as overreaching and then legislature will have to kind of come back and pass new laws so all of this i think will take 12 to 18 months to play out until we have you know a better clarity on the space and in the meantime there are at the moment there's this weird gap where like there is no exchange right now that is registered to trade registered token securities in the u.s so i can do a registered ico that is like a reg d offering you literally cannot resell that token period there's no exchange that can host that but there are exchanges that are going to be launching in

the next six months there's a there's a handful of projects that um a very small number really but um that are very very credible that know their stuff that have been you know dealing with regulators for 25 years that have worked directly with the sec that have all their ducks in a row that are going to be launching those exchanges. And so I think what you're going to see in the next six months is something of a bifurcation. It's kind of similar to what we have in equities right now. So very few companies IPO

because the IPO process is so expensive and so daunting. So we've ended up with a bifurcated market in equities where more and more companies just stay private because why go through the hassle? And then you have a small number of giant companies that do IPO because there are some benefits. I think what we're going to see in crypto land is a small number of large things

that are a little bit more like Telegram or like the Kik deal with Kin, more corporate-type deals that are very large, that go through the hassle, that do fully registered offerings, that get listed on registered exchanges. And then you'll have everything else that is kind of hoping to go unnoticed,

that's small, that isn't going to deal with that, the massive regulatory and legal overhead that entails. And then we'll trade on exchanges in Hong Kong or Switzerland or decentralized exchanges. So I think we'll end up with this kind of bifurcated. is uh whatever stock's working on uh zero xd zero t zero t zero so that would be an example of sort of one of these yeah one of these exchanges that has their ducks in a row uh i don't know i don't know if i would hold them up as a shining light um i i don't know if they have all their

ducks in the row they were definitely one of the projects trying to do that all right so let's uh let's take a little backpedal here we're gonna backpedal let's backpedal to what these exchanges will be holding which is utility tokens and quasi securities what is the purpose of utility token how does it differ from bitcoin and how what does it innovate on like why do we need these tokens so a lot of just let you know up front i'm a bitcoin maximalist i'm very skeptical of the token economy and what's going on there um obviously you that's why i wanted to have you on i've had a lot of maximalists on a lot of bitcoin developers in particular but i am ardently on a path to to to learn more about the token economy i mean i've read as much as i can but from a ux perspective so

i come from a design background as well after i left finance i went to go study ux design and just from a ux perspective in my mind the token economy just seems too arduous to sort of force users to use these tokens and and and create basically new tendencies of how people use technology so how do you see this evolving like how do you see utility tokens working out in the future uh so i'm skeptical as well especially short term i think we're on the wrong side of the gartner hype cycle people are super excited about every possible use case for cryptocurrency and decentralization and most of those use cases are just way too early so one analogy I like is in 1995 you had online retailers selling trying to sell

clothing through the internet you even had you even had online video streaming so you had people on AOL dial-up modems and then other people trying to like video stream sports so just obviously the market was not ready for it where you didn't have the infrastructure you didn't have a user base there weren't enough people on the internet to support those businesses so most utility tokens we have the same problem very very roughly as a rough guess probably a hundred million people around the world own any cryptocurrency. And most of those people own it passively. So they own it in the form of an exchange-traded node, or they own it

via Coinbase, and they leave their Bitcoin on Coinbase. So they're not users. They're speculators passively. You've probably something like 10 million users of cryptocurrency, meaning they control their own private keys. A number I heard today is that one million people have installed MetaMask, which is a way to access the Ethereum blockchain and install decentralized applications. It's not the only way, but it's probably the biggest. So you've probably got a few million people that are your potential market to use it, adapt right now. A few million people. So even if you come up with something that is absolutely amazing, whether it's an amazing game or an amazing, you know, life-changing utility, you know, you've got an audience of

a couple million people that might use it. Some of that is UI. So there's a lot of problems to be solved there. Some of it is security, right? So people are rightfully concerned about trusting a smart contract with their money. There've been a lot of losses. It's hard to use an iPhone app with cryptocurrency, we're not that confident with private key storage, for example. Some of it is is, I already noted UI, but it's kind of hard to under to overemphasize, it's so important that that cryptocurrency is really hard to use. And these decentralized applications are pretty much

impossible to use. I mean, you almost need to be an engineer, like even navigating meta mask, right? It's not that it's rocket science, but it's like, you know, someone who just downloads it from scratch is just gonna give up on it after three minutes. That's just kind of the reality. So I share your skepticism. Everything I just covered, though, is kind of a time-sensitive thing, right? That suggests that maybe it's five years too early, but that we'll get there. The bigger question is the fundamental value proposition. What dApps should exist? What dApps have a reason to exist, even if everyone has

MetaMask installed, if everyone's prepared to use them? And the answer, I think, is it's simultaneously not that many are critical, but I actually think a lot will exist. So let me kind of elaborate on that a little bit um a good kind of flow chart of for cryptocurrency is the first one is does it need to be decentralized and the answer is no it shouldn't have anything to do with the blockchain and the answer is no for almost everything yeah decentralization comes at a huge cost blockchains are terribly inefficient um you know in the u.s one of the reasons why you can't buy bitcoin why you can't buy coffee with bitcoin in many places because people are happy using cash they're happy using uh venmo or paypal or their credit card these are not huge pain points for

the most part. So when do you need decentralization? I think there's only a few reasons. Either you need censorship resistance. So it is critically important that authorities of one sort or another are not able to censor you. They're not able to prevent your communication, either your transfer of value, your transfer of data. There aren't that many, you know, there are certainly people who need that desperately around the world, political dissidents, online gamblers, people in totalitarian regimes trying to move their money out. But it's not that many people day to day. It's certainly not that many Americans. Another is judgment resistance. So if you want your assets to be secure from seizure, like a Swiss bank in your pocket, that's another use case. But when we

get into applications, it's pretty rare. CryptoKitties, for example, is centralized. CryptoKitties is controlled by one team. There's no reason it couldn't be run on Amazon Web Services or on a single server. And so people are paying tons of money in gas fees to play with CryptoKitties on the Ethereum network because it's cool. It's fun. But CryptoKitties is not a killer app of Ethereum. Now, when they add decentralized collectibles, that actually will be.

It's one thing I'm trying to grasp my, like, conceptually grasp my mind around. It's like, why are these collectibles, these digital collectibles, how do they have value? In my mind, and again, I'm a pessimist, maximalist, But in my mind, it's just a continuation of this conspicuous consumption that we're trying to get away from in our, so that's basically what Satoshi was trying to get away from in the Genesis block. He made an overt statement like, hey, we're trying to get away from this banking system, which incentivizes fiat and conspicuous consumption, basically. And sort of these crypto kitties, these crypto all-stars, which was a funny revelation that happened in the last couple weeks.

But in my mind, they're a continuation of this conspicuous consumption that we're trying to get away from. I fundamentally, in my mind, can't find the value proposition of digital collectibles. Why am I wrong? I think it's hard from scratch to explain why people collect things. Um, but I think we can look around the world and, and people like a huge percentage of people collect something. So, and the idea that almost everyone has attachment to physical goods, it's kind of deceiving ourselves to pretend that we don't.

So even if it's a favorite t-shirt, right, we, we, we all have attachments. We, we might have modest tastes. So like I very actively try to cultivate hobbies and, and to the extent I'm going to collect something, I, I like deliberately will channel that towards things that are inexpensive. So as an example, like I went on a camping equipment binge and I bought all of the absolute best camping equipment in the world i bought like the ultralight tent the ultralight sleeping bag the ultralight you know and i i totally splurged right went crazy every you know i spent five times as much on a 10 as i needed to to get something that's two ounces lighter and i spent a total of

3500 because camping equipment it's kind of hard to blow that much money on right whereas like if you have a hobby of collecting fabergé eggs you know um or like expensive watches or there are a lot of hobbies that naturally are very expensive um but we all have things i you know I think it's very human nature is kind of what it comes down to. Sometimes it is cultural significance. So people will collect things that are of religious significance, cultural, maybe patriotic. People might collect flag pins. I think, I mean, the analogy, yeah, it's hard to prove why collecting has value.

What I can try to say is why digital collecting has value. So if you think about the value of a Mickey Mantle card or a Nolan Ryan card or whatever, that card costs three cents to make. it's only scarce because you're trusting the manufacturer not to make more and you're trusting that you can differentiate a counterfeit from something real so every year at sotheby's and the other auction houses uh there are lots of counterfeits that get sold the world's best experts get get tricked by a bottle of wine that claims to be 120 years old but is actually 10 years old um so the point is like you're buying you're coveting a mickey mantel card that's twenty thousand dollars that is actually three cents objectively and you're imparting value

because you think it's scarce. Well, with the digital collectible, you can actually have much more confidence that it's scarce than that Mickey Mantle card. The Mickey Mantle card is more likely to be counterfeited. It's more likely to be remanufactured, reproduced. But digital collectibles are not the most exciting use case. I do think they're real.

I do think they're going to be very large just because humans like collecting things. The collectible market is something like $30 trillion. It's even hard to put a number on it because how you define collectibles matters. But you're looking at a gigantic global market, far larger than gold. I think more interesting use cases for utility tokens, I really come back to the ability to monetize open source development is actually world changing, is actually fundamentally really important.

It's similar to the idea of like, why was having companies world changing? Well, one thing was being able to separate the work from the capital was really, really valuable because it meant instead of you having to buy land and farm it yourself, you could actually kind of build a factory and hire people to work for you, dramatically increase global productivity. So here we kind of have something similar. There's now the ability for other people to provide capital to develop something that is a common good, a common good like an internet protocol or a new ride-sharing app or something

like that. And everyone gets ownership in it. So it is it is kind of more democratized in that sense. It's not just five VCs that get to generate that profit. I think that's, you know, that will generate trillions in global wealth. I think it's actually a game changer economically. I would agree. I mean, the again, I'm still trying to wrap my head around the whole utility token. Like, why not just use Bitcoin? Yeah, so let's use a specific example. So I don't know if Filecoin is going to be the winner for decentralized file storage. I don't even know how large a use case that is, but we can use it as an example, at least. So with Filecoin, you could use the US dollar. You could use anything as payment on this network. So why use Filecoins? Well, a few things. One, by using a cryptocurrency,

at least, instead of fiat, you're able to have programmable money that is native to the programming language, you're able to remove all intermediaries. And so that allows for some really interesting things. So I can have an app on my phone that let's say it wants to dynamically rent out storage space. It can do that at the program level. No human ever needs to be involved. No other company needs to be involved. It can dynamically purchase additional file storage space as usage increases from the Filecoin network. So you remove a lot of friction. That lets you build these kind of stacks of applications that are all communicating with one another without any api or interface just like in a very very simple programmatic way i think

that's actually transformative um that that's just that's one thing but another is that i don't think you can emphasize enough is this new fundraising model in which the network participants own the network and fund the network so it's a way of overcoming tragedy of the commons if you know um actually let me use a different project as an example so orchid is a project that aims to be um It's a little bit like Tor, although they don't like that comparison. It's an anonymous internet. I apologize to the Orchid team if I'm mischaracterizing the project, but their premise is that there's going to be a bunch of nodes all run around the world by volunteers. And those nodes will be necessary to access the network, and it will all be routing traffic such that, let's say you're in China, they won't be able to censor you.

And if you're a political dissident who uploads a comment to a website, they won't be able to do horrible things to you. So let's say you want to launch Orchid, right? And you're an individual, you're an entrepreneur, you don't have a huge amount of money, and it's not really necessarily going to be profitable, right? Maybe it'll be marginally profitable, but it's not the kind of thing VCs are necessarily interested in. And so maybe you can try to raise charity money, but that might be tough. But instead, you can actually say you can crowdfund it in a way that gives the people who invest direct ownership of what they then need to use that network in a direct, intrinsic way. I think that's incredibly powerful. So a billion Chinese people, or let's say 50 million people are interested in that, can actually crowdfund this new protocol and directly own the tokens that they then can use on that protocol.

No, I agree. I agree. I'm just conceptually, I don't know why we need to spin up all these different protocols. So for me, from a design perspective, going back to design, I think Bitcoin at the protocol level, then you have something like the Lightning Network second layer, then you have something maybe colored coins on the third layer. And you just hook everything into the Bitcoin protocol to keep it sort of easy from a UX perspective to know that at the end of the day, you're securing everything down to one protocol at the base level. Like, I think the leaps and bounds that we're creating with this token economy of having to buy Bitcoin, buy Ethereum, then transfer it to this utility token to then use on a network, again, in my mind, seems too arduous for your day-to-day user. Again, like I said when I was describing this podcast, I'm trying to extend an olive branch between the uber-technical side of cryptocurrencies and the masses who don't even want to think about it.

They just want to use stuff. Absolutely. So you're not going to be converting. If you want to use the ORCID realistically in 10 years, assuming that protocol succeeds, you're not going to be taking Bitcoin, putting it on exchange, buying their token. What will happen is a lot of this will happen

without the user knowing they're using a token at all. It will happen at the application layer. So here's how that could work in practice. Let's say I have an app that feels and looks like PayPal or Venmo. It's very user-friendly. It's very easy. Maybe it's connected to my bank account. And then I install my decentralized Uber app.

I'm not saying Uber is something that's necessarily great to decentralize. But just as an example, I install my decentralized Uber app. I hit a button to call a ride. And without me even knowing it, maybe – and it shows me that the fee is $10. Without me even knowing, maybe it's converting my $10 into Bitcoin and then Bitcoin into this Uber coin and then paying my driver the Uber coin. and that Uber coin then gets converted back to Ethereum on his end or Yuan or Ruble or whatever he wants on his end. And all of that can happen within the application without me ever knowing. And I think this idea of the application stack is interesting where you can, by using Facebook coin

in 10 years, you may be using eight different protocol coins without knowing it because the application you're using takes US dollars. It's then paying for file space using Filecoin, which it buys on a decentralized network programmatically. And it's also buying CPU power from something like Golem. And it's doing that by buying those coins. And it's using, maybe it's anonymizing via Zcash. And it's buying Zcash on a decentralized exchange. And it's doing all of that automatically at the program level.

So I think from a UI perspective, it can be totally solved. Yeah, that's, but is this possible with just Bitcoin? That's what I'm trying to get at as a maximalist here. Like, is it like eventually, obviously it's not possible now, But can you conceptually see it being possible from a maximalist point of view, where you have the protocol stack with Bitcoin, the protocol level, and lightning, something above that, something above that? I think the way this is going to play out, something I spend a lot of time thinking about is competitive strategy. So something missing in the crypto space. You have some smart people who can think about basic economic principles, obviously game theorists, engineers.

there's very few people think, MBA is almost a dirty word, right? No one likes the business people in crypto. And I don't really, I think of myself more as an investor than as a business kind of mind. Space is huge on Nassim Taleb, all right? This is an anti-academic space to an extent.

But, you know, I took my intro to competitive strategy class at doing my UChicago MBA. And there's some valuable thinking there in terms of what economic forces are at play and what will drive, what drives a winning protocol, what drives um is this going to follow a power law is it going to be winner take all you know

i spent a lot of time thinking about that and i think um i think you are going to have one base layer or maybe it'll follow power law maybe you'll have one that has 70 of the market another there's 20 that are a security layer that are settlement layer and i think the differentiating factor there is basically decentralization stability and security it's if you're going to trust that layer with billions of dollars you want the code to be unchanging and obsolete which is kind of an important statement right it's slow and dumb to an extent exact yeah slow and dumb um it can't be hard forking every year it can't be innovating it has to be obsolete and you really don't care about fees because you're only using it as a settlement layer so um and then on top of that

you might have something like lightning network that's doing tons and tons of transactions and settles to the bitcoin blockchain once a day or once a week or once a year um and it could be something out like maybe you're making use of orchid or ethereum or another dap platform or whatever and it's settling to bitcoin and that entire platform is selling to bitcoin every 10 minutes. So you're making use of Bitcoin security, but you're also getting, if you want to program in Solidity instead of Bitcoin script, you get to do that. You can program in Solidity, you can create your dApp, and then just have it settle. So in that scenario, I would think that much of the economic value would likely accrue to Bitcoin. It probably accrues to that base layer.

This is entirely speculative. We don't know. I'm trying to kind of think it through. And I think most of the economic value accrues to that base layer. But with that said, I push back hard on the idea of couldn't you do this with Bitcoin? Because that's not how life works. So couldn't you code everything in the world with C++? Why do we have 30 programming languages? Couldn't you get anywhere you want to go in a Jeep Grand Cherokee? Why do we have 50 Jeeps and 50 cars and motorcycles and airplanes? You can go down this list. Couldn't everyone tell time with a Casio watch? So why do we have 5,000 watch manufacturers? The reality is there is differentiation and preference. So some people want to code in C++, others want to code in Python,

just individual preference. There's differentiation in use case. So for some things, you might, for a dress dinner, you want a Rolex. And for, you know, if you're going mountain climbing, you want some cheap sporty watch. And there's brand and community. So for example, a project that I advised is called PinkCoin. And PinkCoin, I've never, I'm not recommending it as an investment. I've never recommended it as an investment, but it's a branded, the way I think of it is it's a community that wants to be charity focused. Yeah. Very, very admirable community. Yeah. And so people like, there was a surprising pushback from the crypto community. There was like, this is a scam and why don't you just give Bitcoin to the Red Cross? And my answer was like,

why do people wear Livestrong bracelets? Why do people go to group exercise classes? If, why do people do race for the cure? I can just work out in my garage. I can just work out alone right people like community like simple fact of life human beings are communal right we like community not everyone but but a lot of us and so um i think branded cryptocurrencies uh are not or have value just because of that yeah yeah that's um again this is something we're all learning together i'm trying to put it put it together in my mind alone and it's it's it's a mindfuck it is because the what i fall back to in the conversation that i have in my head sort of towards the end of the day i talk to myself if if some of you freaks don't um is are we comparing

these protocols are we making sort of non-relevant comparisons so a lot of people like to compare the current cryptocurrency bubble with the dot-com bubble i think that's a terrible comparison because we're dealing with a completely new asset class with a completely new animal completely different perspective in my mind um so again like you said like people like having communities people like separate like live strong bracelets and stuff like that and watches what i i think in my mind what i've come to at this point in my journey down this bitcoin rabbit hole is that like so when you said people like different watches i'm thinking of bitcoin as the sort of the widgets It's within the watch, you know, that make those watches run.

I'm not thinking of it as sort of Rolex versus Bravidia or Shark Watch or whatever. I'm thinking of the nitty-gritty sort of nuts and bolts that make those watches run. I'm thinking they could be built. I mean, it's the – what's the word? What makes watches the – Oh, the movement. I mean, movement, but what are the circular... Gears?

Gears, exactly. So I'm thinking of Bitcoin at the level as the gears that make the watch run. Then you'll build brands on top of it. This is Marty's horological hour for those just joining in. Ari, we get cosmic here on Tales from the Crypts, all right? We get as philosophical as possible, and the whiskey helps. I am enjoying it, thank you. Again, I have to bribe people to come into the studio somehow.

usually it's whiskey or another form of alcohol so again conceptually just walking through it like that's where i'm at and that's what i'm trying to figure out is bitcoin sort of the widgets within the watch or is it another brand of watch that is competing against is it a rolex versus a shark watch or a bravidia shark watch is a terrible comparison to a rolex because it's digital but that's do you understand where i'm coming from yeah yeah it's an interesting way of framing the question um i think it's both so so when you think about bitcoin it is both a brand and it is a community and it's code and it's a structure right and it's it's the gears themselves and um for some use cases it may be better to have different gears so um bitcoin for example

is a very limited scripting language and the benefit of that is it's harder to mess up it's it's fairly easy to write code you're going to be confident runs the way you expect in bitcoin but you're more limited it's hard to write complex code and there's some things you literally can't do and bitcoin maximalists will say there's nothing worth doing you can't do in bitcoin and that that's kind of a separate and interesting discussion but um so versus with ethereum with solidity there's pros and cons of the programming language but beyond that it's also a different community and a different brand and the community matters a lot in terms of um like i think a mistake a lot of people make is a cryptocurrency is not the code the code is open source i can

fork Bitcoin tomorrow into REcoin, it will be identical from a code perspective. No one will mistake it for Bitcoin. So what is cryptocurrency? I think it's code plus people. And that's true in a literal sense, which is that the way Bitcoin works, its resiliency, its strength, its ability to store value depends on the game theory, which depends on the community. So if I know, like an example, Ethereum is probably the best example. So in 2016, and I think it was June, Ethereum hard forked into Ethereum and Ethereum Classic. And that produced two more homogenous communities. So initially, you had one heterogeneous community made up of people with different views. And then you had this hard fork, and the people who liked the idea of hard forking to recover funds went

into Ethereum, and the people who didn't went into Ethereum Classic or just left that community entirely. And Ethereum at that point was then fundamentally different from its community, which was that it was more likely to support a more centralized leadership and more likely to support a future hard fork. And Ethereum Classic was less likely to do either of those things because they had established precedent and they had changed the stakeholders. So I think it's totally reasonable to say, imagine if, you know, let's say Bitcoin forked into two identical chains, identical from a code perspective. Let's say they changed one opcode such that the two were not interoperable. Right.

Changed the address structure or something like that. Yes. Yeah. Yes. So they changed such a way that the two were, they were two separate chains that were not, could not kind of overlap with no technical attacks. But they now had different communities. So maybe one group loved core and one group, you know, whatever loved, it was one group was more libertarian and anarchist and one group loved regulation and wanted to embrace regulation. Those would be two different assets, despite having the same code. And I think there's some people to be drawn to one and some drawn to the others, even though the gears are identical between the two, they're fundamentally differentiated. And some people will prefer

one versus the other and one is not objectively better than the other no i think what we're getting at here that is that this is a human psychology project more than a more than a technical project which is a rabbit hole i'd love to dive down because a lot of what these assets are built off of are narratives and humans are very susceptible to narratives that's been the theme of the last month is narratives on this podcast and it's interesting to see in real time people sort of uh congregate around certain narratives and again i'm a maximalist i congregate around a certain narrative that says hey i think this is a once in a lifetime sort of happening where you have satoshi nakamoto airdropping this on humanity and we're like the monkeys in uh 2001

a space odyssey staring at the the black slab like what the hell is going on here uh and i think it's going to be impossible to beat the satoshi narrative so that's where i come from as from a maximalist perspective is that it's going to be impossible to beat satoshi's narrative in the long run and i can see from an energy uh consumption perspective this being a zero-sum game in the long run because you need sort of the energy to mine these these cryptocurrencies and to secure the networks and where i come from is you're never going to beat that narrative and at the end of the day you're fighting for scarce energy resources that need to secure these networks and that's where i sort of build my maximalist position from what would you have to say to that oh there's

there's so much in there to unwrap i think i i'm gonna i'm gonna slightly dodge and and dive into something that i think is is related and interesting and hopefully you'll forgive me because there's a lot of little rabbit holes we go down there in terms of like proof of work and first proof stake but i think something really interesting i'm thinking about in terms of the narrative is So, Venezuela just launched their cryptocurrency, or at least say they did. I don't even know if it works or ... Actually, the guest that we had on Fridays from Venezuela walked us through the Petro, it's not a cryptocurrency. Okay, okay. I will totally defer to them, this is not something I've ... In fact,

it's unclear if a U.S. investor can invest in it. It might be treason. You'll get sanctioned. You'll be treasonous. Right, right. I have to admit, that sounds at least like a good bar story, right? Guilty of treason, but maybe after you get out of jail in 60 years. I don't know. But I think the way it turned out is the Venezuelan government holds all of 100 million NEM tokens that they haven't sold any to the public. Gotcha. Technically. So you have Venezuela, Iran is talking about it, Russia is talking about it. And then the real one that people can't ignore will be China. And crypto fiat, a cryptocurrency launched by a

central government is so attractive to every government around the world because it's attractive to law enforcement because you can route out if you can see every transaction um you can end a lot of crime and and of course they'll emphasize things like terrorism and child porn that we're all against um it's attractive to the central bank because you can do things like negative interest rates so a lot of liberal nobel prize winning economists in the u.s support eliminating cash um guys like joseph stiglitz nobel prize winner says we should do away with cash in the U.S. so that the central bank can do negative interest rates and you can't stick your cash under your mattress. You have to leave it in a bank and you have to lose money. It's attractive

to the Treasury Department because they can then track every single transaction in real time and have real-time clarity into what's going on in the economy and they can change deficit spend as is appropriate. And it's attractive, of course, to the IRS and any tax collection authority because then they can have full tax collection. And it's easy to sell to the public because you get the law enforcement angle, you get all the Nobel Prize winning liberal economists, and you tack on that a better UI. So what's amazing to me is the U.S. dollar doesn't work on weekends. It's a crazy concept. And every time I say that to people, they kind of scoff. They're like, oh, you're not serious. It's like, no, like literally transfer someone $10 million on a Saturday. You cannot do

it. Not going to happen. Not going to happen. You literally need a truck full of cash, several briefcases. The U.S. dollar literally does not operate on weekends. You have IOUs. You can maybe send a PayPal or Venmo payment, but that's just an IOU problem. You Venmo on a Friday, and you forget that you Venmoed on a Friday, you might be waking up with an overdrawn account on Monday. So, you know, it's kind of crazy. So, when a government like the U.S. eventually rolls this out, they'll roll it out with a really sleek user interface and an iPhone app that users are pretty happy with, that they're like, oh, wow, this is like a working U.S.

dollar, awesome. So, this is incredibly attractive to any country that leans to totalitarian, because it makes it incredibly easy to crack down on political dissidents, for example. Not only can you confiscate their wealth, you can make it so that no one can give them money. You can make it so that they are instantly an economic pariah, where they literally cannot go to a store and buy a bottle of water. Blacklisted. Blacklisted. And anyone around them can be blacklisted so easily, with no appeal, with no legal process.

So a narrative that I kind of fear a bit is, right now, the U.S. is pretty crypto-friendly. So the draconian discussion about ICOs is about enforcing existing security laws. But it's pretty pro-Bitcoin and pro-Litecoin and pro the things that didn't fundraise. So what happens, though, if the term crypto starts being synonymous around the world with Iran, Russia, Venezuela, and China totalitarian regimes? Does that become... Now, obviously, those are kind of the opposite of Bitcoin. So that is a permissioned closed cryptocurrency versus a public open cryptocurrency.

They're kind of diametric opposites, but I don't know that most people will know that. Yeah, and that's the thing. This whole emerging asset class comes with a huge education push, like being able to define to people, like, hey, this is different than this, even though it looks like it's exactly the same. A cryptocurrency like the Petro is not a cryptocurrency at all because it's not decentralized. it's not you're not able to run a petro node to contribute to what you think the consensus

consensus mechanism for the network should be it's no the the venezuelan government basically has 100 million petro created on the nem network i don't even know what nem is like like it's been a top five crypto for like a couple years but literally couldn't tell you when nem came to be like what it is what their value proposition is other than allowing venezuela they didn't even ICO they just created a hundred million Petronem out of nowhere I think of it like Japanese Ripple

just in the abstract I'm not an expert on the protocol by any means but I'm not saying that it's like Ripple in terms of being a DPoS system but it's the reason they're as big as they are is they have traction among Japanese banks and their pitch is that they're kind of an

enterprise solution in Japan and they have some enterprise traction so that's the shorthand And NEM is Japanese Ripple. A little divergence here. Is this CoinMarketCap's fault that we're having all these non-cryptocurrencies being defined as cryptocurrencies? You mean like NEM? I think NEM, they didn't list the Venezuelan petro-crypto, did they?

No, no. But like NEM came out of nowhere. So did Cardano. So did a lot of protocols that... but yeah but cardona still has like a consensus mechanism that's clearly defined as nem like yeah yeah they do it does all right all right just making sure yeah i think they're the term legitimate has so much like political weight in this industry right i think they're a legitimate cryptocurrency in the sense that they don't look that different from most of the other in the top

10 they gave an effort they put an effort in to define there's some nodes there's some code there's it's uh i don't think it's permissioned in any way i yeah i think it's it's open yeah well that's the thing about the space right now it's like nobody knows nobody knows to an extent because i'll push back a little bit nem has the from what i understand the ability to blacklist payments on their network so they're centralized to a to a very high degree i don't So I'm ignorant of that. So I will plead ignorance. I don't know.

So like Ripple gives that functionality, but only for specific IOUs that are issued. So the issuer of an IOU can then freeze that account, but XRP tokens cannot be frozen. Yeah, so that's another important thing. You have to basically conceptually de-alienate between Ripple the token and Ripple the protocol or Ripple the software.

It's a different thing. I'm just saying with NEM, I don't know. Is there a central body that can blacklist? From what I understand, yes. Again, I don't completely understand, but from what I understand, yes, there is. It has been brought up that, yes, if NEM wanted to blacklist certain transactions on their network, it would be pretty simple. Got it. I've never invested in NEM, and I think this shows a little bit of how complex and ever-changing this space is. I spend 18 hours a day on cryptocurrency and have for the last two years, and I know almost nothing about NEM. Exactly. By almost out of necessity, like my approach to the space is a very, very tight funnel of I'll generally try to learn something about the top 30 coins, but it's very much asking kind of the world's best blockchain engineers and cryptographers, what should I look at?

And that gives me a fairly short list, and then I try to evaluate them from kind of a more of a trading perspective where I can add value. Let's dive further into that. What's your sort of thesis behind evaluating coins? what you just i mean you have a world of options here how do you decide what is important to to look at and dive into and what is completely not even worth your time so if we're so i have a trading background and i'm not averse to trades where you're betting on market psychology so uh for example airdrops have generally been very valuable so if you know that an airdrop is coming and it just then it's a market timing question how you know look up z classic look at its run

the last couple months yes indeed um z classic has had quite the run um so you know i'm i'm open to doing those kind of trades but it's not even that valuable to talk about that because that one that changes very quickly it's kind of a greater fool's game you're just trying to kind of like the market adapts other traders adapt so um for example like there was a point where okay you wanted to hold the asset through the airdrop and now it may be becoming like z classic uh may have peaked four days before the airdrop so then it becomes like a rush for the exits right so everyone rides the wave everyone's trying to figure out when's everyone else gonna exit um but so i think it's more valuable to talk about kind of long-term buy and hold and my view on this is uh almost

everything's worthless so i'm very confident that of the hundred coins 80 have no chance of and it's not just that like there's hindsight bias the fact that something failed doesn't mean it wasn't a good attempt so most startups fail doesn't mean that they didn't have some chance of success but 80 of 100 coins will be worth zero they have no chance of ever succeeding because they're attacking a use case that is not real so trying to offer decentralized um would be an example decentralized airbnb at least at this point in time is not a credible use case um the centralization of airbnb is not a meaningful pinpoint so like there are a lot of benefits that come from centralization.

So it allows for incentives to develop good UIs and network effects and centralized things are just faster and cheaper to run, right? So what are the pain points? Well, it allows for extraction of rent. So that centralized body can add a 20% premium to rents. Is a 20% discount enough to move away from a sleek UI, centralized, fast, cheap,

optimized interface to something that's crummy? And the answer is no, people just don't do that. So there are a lot of projects like that that are decentralized Airbnb that just – it's a fundamentally broken use case. It doesn't matter how good the protocol is. It doesn't matter how good the team is, how good the marketing is. It will fail. There's a lot like that. Then you have some protocols that are just fundamentally broken.

IOTA? It's funny. In that moment of hesitation, I was thinking, do I say IOTA or not? I had to say it. You know, it's funny. I'm generally pretty careful about picking fights with $10 billion protocols. Um, IOTA is kind of one that I've chosen to like pick a fight with. And it's funny how ridiculed they are by everyone in the industry.

It's, it's a weird bifurcation. Like every engineer, every cryptographer you talk to will just ridicule IOTA. Don't try to create your own fucking collision, like algorithm, like from scratch, like over the course of three months and then not expect any blowback. Like, sorry. Well, you know, it's funny if that was the worst thing they did, I would not pick on them because i i respect entrepreneurs i respect innovators i respect technologists who push the envelope um i like i have a friend who uh a guy kyle samani who runs multi coin um who's a hedge

fund manager i respect i like him a lot um and and he and i just had a really quick kind of back and forth where the zero coin protocol uh so so your listeners may know may have heard of z cash z cash is a an uh privacy focused protocol the pre z cash is based on something called the zero cash protocol the precursor to zero cash developed by the same academics was called um the uh i'm going to get confused now it was oh the zero coin protocol right so before zero cash it was zero coin and um i may be messing up the jargon but the zero coin protocol um a bug was found recently and uh it was written by the same academics it was developed like i don't know i want to say five six seven years ago actually maybe even earlier but i think they finalized it like seven years

ago. And then over a few years, it was turned into a protocol. And Kyle commented something like, don't roll your own cryptography. And I pushed back and I was like, no, like we want innovation. This wasn't fly by night. This wasn't someone did a major innovation and then launched a protocol the next day. This was like academics working on this for years. And then years after that, people spending years turning it into a protocol who then gradually fundraise, gradually tested. And it's like, yeah, some of those are going to be buggy. Like Ethereum was buggy. Bitcoin was buggy. Bitcoin, like there were critical bugs in Bitcoin. When was the last accidental hard fork i think i think even the 82 and a half million block reward was it that one

like 2011 i was gonna say 2010 2010 it might have been 2010 but so there was a much more minor one in 2013 um yeah it was march 13th 2013 i am impressed that was encyclopedic well i did a did a history of the bitcoin blockchain on this podcast so i had to know all this stuff nice and And that was, that hard fork was a result, yes, of a consensus bug, a consensus protocol bug. It was minor. It didn't cause a lot of damage. But just an example, like that was fairly late. But in the first year and a half, Bitcoin had tons of bugs, right?

Tons of critical, critical bugs. So I don't, I mean, the reason why people pick on IOTA is, one, they promise free and scalable transactions. But they haven't solved the fundamental problem with DAGs that would enable that. so the one of the issues with that that is unsolved and so it's not that they won't ever solve it so it's like i could push back when i say this and people will be like oh but well you know ethereum hasn't solved sharding or plasma and and well it's like yeah but they have a plan to do it it's not there are no massive overriding clear questions they can't answer so they're going to encounter a lot of obstacles along the way they're solving those problems but um there's

kind of a roadmap they have a plan to say we hope we'll implement sharding we have a plan to do so so the problem with iota one of them is um you have a tangle and the premise is you're going to have infinite scaling by having everyone who runs a node on the network be validating transactions and the problem is that those nodes are supposed to be able to be internet of things devices things like a toaster and the problem is that if that and every node does a little bit of proof of work to validate transactions to prevent spam but if it's a small enough amount of proof of work that your toaster can do it in a way that is free then you're not preventing spam attacks And so the reason why IOTA right now, for anyone who doesn't know, is run off of one computer, literally one computer.

I think it's called the coordinator. And when the coordinator goes down, the IOTA network goes down. And so there was a three-day period where the IOTA network simply didn't work because the coordinator was turned off. And so the reason why IOTA is run on one computer, at least one of them, is to prevent spam attacks because otherwise anyone for free – it's not like a hypothetical attack. Like anyone who doesn't like IOTA could for free just overwhelm the network with fake transactions and kind of mess up the tangle. So the coordinator prevents that. And the IOTA team says the coordinator is temporary. We're going to get rid of the coordinator over time. And that's a fine concept. I have no problem with the idea of boot. Like Satoshi mined the first block. He was the first miner. Like it's fine. Like for at least a moment in time, Bitcoin was entirely centralized with only Satoshi mining. That's fine. Like you can bootstrap. But you need a plan. And I have, you know, to the best of my knowledge, there's no credible plan to be able to get rid of the coordinator because the spam attack issue is not solved. And this is not a hypothetical edge case.

This is like an absolutely critical, like Bitcoin solved the Byzantine generals problem by using proof of work mining. It's like a core function of what made blockchains work and usable as money. And IOTA hasn't solved that. And they're pitching it as though they have. And so that's another issue. Yeah, again, it's like a common problem in enterprise technology startups these days. Hey, we promise you that functionality. We're the marketing team.

You want that? We're going to get it for you. We're going to go back to our development team, and they're going to tell us we're not going to be able to do it. But we're going to promise you we're going to do it no matter what. It's a lot, and you add on that the buggy cryptography, which they then said they had on purpose so that if anyone tried to copy their source code, it would, you know, they'd be able to sabotage their competitor.

Such a chicken shit out. That's like... And then there was misleading marketing. So they got attacked for the use of the word partner, which I didn't care about. They claim Microsoft is a partner. I know partner is like... I didn't ever attack them for that.

What I attacked them for was they wrote that Microsoft and 12 other companies had deployed nodes on their network that sell data. And that's not true. So I actually confirmed that press release with the team, and those companies never sold out on the network, which is what that statement implies to any kind of normal person reading it. And so it turns out what actually happened was they did talk a few companies into running a node on a testnet. Those nodes never, as far as I know, never sold out and never did anything. So I called them out for the kind of misleading press release, and good actors in the space would have just said, oh, we didn't mean it that way.

Like, we meant it as it's a testnet, we say that elsewhere, and blah, blah, blah. But what the IOTA team has a habit of doing is personally attacking anyone who criticizes them in any way. So the reason I'm singling out IOTA and the reason why you'll find a lot of people in the cryptocurrency space who seem to single out IOTA for punishment, given there's tons of scams in the space, there's tons of bad actors, why does IOTA get singled out? It's because when people criticize IOTA, even in the abstract, even when they criticize the cryptography or the coordinator, the team then attacks them as individuals. They go after them personally. and there aren't really many people in crypto who do that uh i mean you have politics between like bitcoin and bitcoin cash people attack names like craig wright but like when people attack ripple they don't attack the developers like i i've criticized ripple from the price perspective

i respect the developers i would never ever insult an individual who's working on ripple um and i i never ever insulted an individual working on iota i pointed out kind of like hey this press release is a little bit misleading guys like it just doesn't match reality and they then attack me as an individual they attack zuka wilcox for criticizing cryptography they attack neha at mit for finding a critical fatal flaw in the iota protocol and they then attack her as an individual um and to me that just like if i if i have to pick a giant buggy protocol with misleading marketing iota becomes a pretty good target when they act like that yeah easily i mean after that MIT audit

came out, what was that, April? It was early last year, I feel like. Sounds about right. It was about this time last year, and it was like, hey, we're just going to audit your protocol, we're going to let you know what we think you should work on, and again,

they came at them personally, it was like, hey, these people are just trying to make sure everybody knows what they're getting into, and you're going to personally attack these academics for trying to help you out i would argue in the long run saying hey maybe this is what you guys want to focus on working on maybe you shouldn't create your own cryptographic collisions from scratch maybe you should trust some that have been tested for decades and yeah so that's one

example in the space iota is somebody that one another theme that we touch on a lot here on tales from the crypt is the hubris in the space and the amount of hubris that the iota developers show towards critics is outrageous and it's one thing we aim to get through is cutting through the noise and getting through the signal uh in this space and iota is definitely a lot of a lot of noise it's it's it's it's a perfect example of hey we're going to sell you the world but on the back end if you open up the hood and you look under the hood and what's going on it's not what we're marketing and that's one thing i'm trying to again we're talking to the masses here who aren't as technically literate as some in this as some of the space are trying to help them

sort of stay away from these types of projects so that's one thing as again and like i say i'm dumb like i i'm not technically literate at all i cannot create a consensus protocol i can barely code html css javascript but again i fall back on heuristics like if you're trying to be overcomplicated and use jargon to sell people the world i'm going to call you out and that's sort of what iota has done and is drawing more attention to themselves i would argue uh sort of recently with calling other people out like when you lash out it's like all right why are you lashing out something must be wrong yeah yeah that and and they picked the wrong people to lash out at like zuko wilcox is like a puppy like he's just a good guy and like like whatever you think so zuko

Wilcox is the cryptographer who created Zcash. And whatever you think about Zcash, Zuko's a well-intentioned good guy. I'm not saying he's an angel, but he's definitely one of the better people in crypto in terms of trying to be honest and well-intentioned and integrity. And so he comments on your cryptography, and then you try to beat him up personally. Like, what are you doing? And same with Neha at MIT. These are good actors who are contributing academic knowledge to the space. And, and, uh, again, I'm not saying they're perfect, but these are not the people you like single out to pick a fight with. If you're, if you yourself are well-intentioned, um, it's a real challenge in the space, you know, for your listeners where it's like an analogy I like to use

is if the two best, if the two world's best neurosurgeons are debating in front of me over which surgical technique to use, I have no way of evaluating which one's right. There's no, I have no hope. It's a coin flip. I love that analogy. Um, they're both so far over my head that if one of their arguments seems more credible to me, it just means I'm fooling myself. And the same is true in cryptocurrency. And for me personally, so I'm non-technical. I was a poli-sci major at UPenn. I have an MBA. I have a CFA, which is a financial training program. So how do I try to evaluate cryptography and engineering? And I think I'm pretty good at working through expert networks, listening to arguments and debates, and trying to find

kind of who the BSers are, right? And there's a lot of debates where I don't know the right answer. So I'll give you an example. Like Greg Maxwell, who is one of the Bitcoin Core developers, one of the smartest people on the planet, a world-class cryptographer,

world-class blockchain engineer, had a long debate on Reddit with Vitalik Buterin, who's the creator of Ethereum, and also a super genius, brilliant game theorist and blockchain engineer. And they were debating over

whether proof-of-stake is a valid game theory system, whether it's a valid consensus mechanism. and i'm not going to read that debate and come to the right answer uh it's a fascinating debate i anyone who's listening might want to look it up and try to dive into it but so when two of the world's best engineers disagree with each other uh i'm generally not going to make a bet like i don't know um so i might i may come to my own opinion i do kind of have an opinion uh but i'm humble enough to know it might be wrong so where i tend to tend to look for things is where all of

the smartest engineers agree with each other one thing you can't adjust for political biases so i give you an example like if you ask a bitcoin core developer like some of them will be like vitalik's an idiot well obviously he's not an idiot like obviously not obviously not say what you will he's one of the smartest people on the planet like is he like maybe there's debate over is he in the same league as greg maxwell but he's certainly still smarter than anyone who's listening to this and and myself included right like um you know he's a brilliant guy and a brilliant coder um so maybe greg maxwell is an order of magnitude smarter than him i don't know But you do have to adjust for politics.

You do have to adjust for bias in whoever it is that's giving you that opinion. A Bitcoin core developer is biased, and so you have to adjust for that. An Ethereum developer is biased. But with that said, I tend to look for spaces where all the engineers agree and the market disagrees. So there's a lot of protocols, like IOTA, where every engineer you talk to will tell you it's garbage. And then there's a lot of protocols where every engineer you talk to, or maybe not everyone, but most will at least grudgingly acknowledge that there's something of value here. there's something interesting, something differentiating.

And if that thing is trading really, really cheap and you think there's a good business use case, you think there's a good team, the things that you can evaluate, to me that's what makes an interesting investment. Yeah, and one of the areas I think that these developers would agree is anon coins, right? So when comparing anonymous cryptocurrencies to Bitcoin,

I think one thing that the engineers in Bitcoin would concede is that Bitcoin is not fungible right now. It is easily traceable. Bitcoin is an easily traceable cryptocurrency. Definitely. So, law enforcement loves Bitcoin. They love Bitcoin. So, a good line from Zuko Wilcox on privacy is, privacy is not anonymity. Privacy does not mean that every transaction is anonymous and that no information is given. Privacy is the ability to control that. Selective disclosure. The whole push transaction, brisk pull transaction sort of mentality. You'd be able to push what you want to be seen and not push what you don't want to be seen.

Exactly. And so financial institutions are going to adopt things like ZK Snarks because their clients, obviously, they have to report things. They have AML, KYC. They have regulatory things. They can't have anonymity. But at the same time, they actually are legally required to not disclose to the general public what their clients are doing. Same with medical records. If a hospital discloses your medical records to the general public, they get sued.

but they have to disclose it to regulators. So that's privacy. And so the privacy coins have been a favorite of mine. So, I mean, really, since I got into the space, they've been a focus. They've been at least a third of my portfolio since I've started investing in cryptocurrency, and they still are today. I think it's still a hugely undervalued segment of cryptocurrency. It's one of the only things that's actually used today. So I constantly get asked what cryptocurrencies I recommend. As a general policy, I won't name any for kind of obvious reasons, but But there is an exception, and I make an exception because I view it as a long-term buy and hold, and I don't actively trade it, and I don't think our position in it is going to change anytime soon. So Monero is one of the only cryptocurrencies that's actually used for its purpose today.

So Bitcoin is kind of used as a store of value. Ethereum is mostly used as a crowdfunding tool and maybe to pay for gas for CryptoKitties. and use some other dApp platforms that are really just crowdfunding platforms like Neo and US Soon and Waves. And these things are not really used for anything. And then you have Monero, which is used on darknets

and for donations to WikiLeaks and political dissidents and for people to anonymously or privately store their wealth. There will be other privacy coins that are attractive over time. Bitcoin, Mayatch, North Signatures, Confidential Transactions. There's a whole lot of innovation in the wings.

It's up in the air. It's up in the air. So we don't know what will happen. We don't know when it will happen. But even if it happens, I actually think there's room for – it's probably going to follow a power law. So you're probably not going to have one cryptocurrency that just conquers the world. Even if you have one that captures most of the value, it's probably 80% of the value. That's just how most economic things work.

I hope that's how it works because if in 10 years there's only one cryptocurrency that exists, that's a pretty fragile system, right? What if a bug is found in that system? So I hope that if Bitcoin adds Schnorr signatures and confidential transactions and all this stuff and becomes fungible and anonymous, I still hope Monero exists because I'd want a little bit of diversification. You want that fallback. Exactly. So Monero to me is, you know, it's really the only privacy coin that's used at scale today. No, and I'm very happy you said that because my listeners will think I'm smart because that's the only other altcoin that I've ever pumped on this show. That's funny.

is monero because like you said it's the only one with a use case of people actually using it to do what it purports it will do and that's something people have to realize is like this anonymous use case is is something that that is a use case right now like other than like you said ethereum its use case is spinning up icos bitcoin's you case use case is arguably store of value wow the the whiskey is hitting arguably store of value but it's not guaranteed yet not not you can't say for certain that it's only used as a store of value i think bitcoin is more of a if this shit takes off like bitcoin has the first mover advantage has the lindy effect advantage like i think again the narrative advantage with satoshi like like it is it's a bet on the future

of functionalities getting built into it because I don't think Bitcoin in its current state could survive. I disagree with you there. I think, well, first of all, at first the disclosure, in case it wasn't obvious, is that I'm long Monero. So for anyone listening, I'm shilling a coin that I own.

And Monero's a really easy coin to shill because they basically don't market. So Monero's marketing was mostly the lead developer, Ricardo Spagni, saying don't buy Monero it's a scam and um i thought something was hilarious was was there's now some people are working with monero that are starting to do a little bit of of i don't even want marketing is a dirty word to them let's let's call it education and i've joked with ricardo that like the the just moving from don't buy monero to buy monero is like and you know it's

such a leap forward in their marketing like so you know hire a brand consultant to tell him to go from A to B and bam, and it will double in value, right? Just that. Oh, so yeah, the question of whether Bitcoin needs to evolve, I don't think it does. So in our world where Bitcoin is an obsolete settlement layer, obsolete in the sense that it doesn't have all the bells and whistles of many new protocols that will be invented, but it has the advantages of a stable protocol that is the most trusted because it's the oldest and unchanged and is decentralized across jurisdictions and all that, and has a Lindy effect and brand effect, in that world, it's just a settlement layer.

And any feature you want, any feature, can be layer two or layer three. So you want to program in Solidity or Python or C++ or Haskell or any formal verification language, whatever Tezos is going to use, go for it. And then that'll settle to Bitcoin once an hour. You're just cool to be there? If I'm going to take a step back

and if I were to rephrase what I was going to say, that Bitcoin in its most perfect state would have in my mind. Actually, you know what? I can't even say this for certain because other things could evolve in the future that would make me think, oh, it could actually be more perfect if this were added. But I think if it got to a point

where it had Schnorr signatures and confidential transactions, beyond that, you don't need anything else. It would be the perfect protocol in my mind. Gotcha. So I don't know if Bitcoin's going to add those. I think there's a decent chance that it does because you can do it by soft fork. So we'll see.

I got drinks with John Newberry last week when we were talking about it. He said five years at the least if we're going to get short signatures and confidential transactions. It's going to be a battle, like we saw with the Segwit battle. It was a battle.

It was a two-year battle at least. And it was contentious, as we saw, with the hard fork of Bitcoin Cash. Yeah, well, that battle's not over, by the way. oh god no it's not over bitcoin cash is not going to go away quickly no but i i was more worried about them a couple months ago than i am now so the change to their uh their difficulty readjustment mechanism actually mattered a lot so so it removed the pogo stick which removes some of the leeching like there was this weird effect where hash power would switch back and

forth between bitcoin and bitcoin cash it was very disruptive um and they hard forked the Bitcoin Cash Difficulty Adjustment Mechanism. It's now somewhat complex. So Bitcoin adjusts every 2016 blocks, which is every two weeks, roughly. They're just in every block, right? It is. But it's complex. There's a cap. And I actually need to review the exact specification. But as a result, it doesn't pogo stick with Bitcoin. So it's a less direct kind of fight for hash power. But they're still both on SHA-256. They're both fighting over hash power. it's a detente it's a temporary it's a disequilibrium well you are providing me the perfect perfect segue it's a conspiracy theory of the week and that is that cobra is trying to

get bitcoin to change the pow the proof of work consensus mechanism to maybe downgrade it to a gpu consensus mechanism so that bitcoin cash can take all the sha-256 asic power and put it towards bitcoin cash that's the uh conspiracy theory of the week on the interwebs that uh there's some so for those of you that don't know cobra uh we're not talking about uh uh we're not talking about the gi joe enemy we're talking about some anonymous dude who owns the rights to bitcoin dot org there's a bitcoin core no bitcoin dot org and bitcoin talk dot org he owns part of these websites that are basically go to uh sort of forums for people looking to learn more about bitcoin and all coins um and he owns part of these and he's become very vocal on

twitter more recently specifically around the need for bitcoin to change its proof of work algorithm to resist asics because asics have become too concentrated because of bit made another and the one other semiconductor manufacturer of asic miners um and people are saying that this is a sort of a red or red herring is that the right term or sort of a distraction so that we will change the proof of work consensus so that bitcoin cash can take all that ASIC mining power. Do you want to delve into this conspiracy theory or are you just going to let me sound like a nut over here?

Sure. So I follow Cobra on Twitter. I don't know him at all. I don't know his history. I didn't even read his open letter. I just saw the header. So I'm less informed on this than you are. So I can't comment on the conspiracy nature

of what his motives are. I can comment on the idea. um so uh first gpu mining doesn't make sense i'll say that really bluntly um i've actually never heard it's a weird thing to me it's one of the very like i'm really humble about most things in cryptocurrency and humble's not the right word it's i'm stupid about most things i simply don't have strong opinions because i don't know so i don't know if proof of stake is going to work i don't know if proof of space time works i don't know like there's so much i don't know um i have a strong conviction that gpu mining is nonsensical and i i challenge smarter people

than me to explain why i'm wrong and i have yet to hear it so maybe one of your listeners is probably shaking their fist angrily about why i'm an idiot but um so the reason gpu mining doesn't make sense is because the entire premise of proof of work game theory is you cannot attack the network without uh you've skin in the game without shooting yourself in the foot so if i have um so before bitcoin hard forked if i had shot 256 asic miners even if i had 75 of the network i was very unlikely to double spend. The 51% attack is such a misnamed idea. It's a very misleading idea. So what protects Bitcoin is not the decentralization of mining such that no one is 51%. It's the game theory that if someone has enough mining power to do a double spend,

then they have enough sunk cost to not want to. So if someone owns 75% of the Bitcoin ASIC mining power, they've made this massive investment in ASICs that are only useful to mine Bitcoin. And if they then double spend, they're going to devalue Bitcoin and therefore devalue their ASICs, which they don't want to do. Now, there is a cost to concentration. So if one person has 75% of Bitcoin ASICs, that does produce centralization risk because maybe let's say they're in China and the Chinese government puts a gun to their head or their kids' heads. So I don't mean to say that there's no risk to 51% attacks. But proof-of-work game theory is premised on this idea that I can't attack a network and retain the value of my hardware. My hardware is only useful on that one network.

With GPU mining, let's say I'm mining Ethereum, and then actually I'm going to embarrass myself because I don't know the different GPU mining algorithms that are optimized. But hypothetically, let's say you could mine – actually, I'm not even sure if this is true – Zcash and Ethereum with the same GPU miners. So I have my GPU miners. I attack Zcash, and then I just transfer the hash power to Ethereum. So I haven't devalued my mining power, which means I have no incentive not to attack Zcash. So the problem that Bitcoin faces, right? So for that reason, GPU mining is fundamentally, in my mind, fundamentally insecure because you can take your GPUs, attack a network, and then you have not devalued your hardware. I would agree.

I've yet to hear – I'm very happy to have the stupidity of that logic explained to me. Yes, there are pitfalls to ASIC mining in that it leads to concentration, but you still have the strong economic game theory. So what's wrong with Bitcoin right now? You have two competing protocols that are somewhat supplements for each other in the sense that what hurts Bitcoin may, under some circumstances, help Bitcoin Cash. And they both use SHA-256. They use the same ASIC miners. And so if I'm Bitmain, I may, for example, sell all my Bitcoin, convert it into Bitcoin Cash, and then attack the Bitcoin network with something like a double-spend attack or an extreme version of a double-spend attack, which is a reorganization or rollback attack. And what that means for your listeners who are not familiar with the jargon, Bitmain actually threatened to do this in a letter.

They threatened to mine overnight empty blocks for 12 hours. And they would do that with, say, 55% of the Bitcoin hash power, which they controlled at the time. And then they would dump that longest chain on the network. So the way Bitcoin nodes operate is Bitcoin nodes will automatically accept the longest chain that meets the consensus rules as valid. So let's say, you know, it's 8 a.m., you're waking up, and your node has all these transactions over the course of the night, and suddenly you get a new chain that is slightly longer that is empty. That new chain will entirely replace the old chain, and it's empty.

And so what that means is the entire night's transactions are erased. And so the threat of a rollback attack is devastating because it means that as long as the threat exists, even if it never happens, you can't spend your Bitcoin. If you're Coinbase, you cannot, let's say a hedge fund manager transfers $10 million in Bitcoin to Coinbase and then wants to wire themselves cash the next day. Coinbase can't send them $10 million in cash because they don't know if the Bitcoin transaction will be reversed by a rollback attack. So it wrecks havoc on any kind of business or exchange or trading fund or anyone who wants to transfer large amounts of Bitcoin. So what Bitmain could do, and I'm using Bitmain just as an example because I control a lot of hash power. I'm not trying to defame Bitmain.

What Bitmain could do is, although actually I take that back. They did threaten to do this. So it's probably fair for me to use them as an example. I would say. So what Bitmain could do is, you know, they go short Bitcoin. Let's say they sell Bitcoin futures. They convert all of their assets to Bitcoin Cash. They then attack the Bitcoin network with something that will fundamentally devalue it, like rollback attacks.

And it may be that they make money doing that because Bitcoin Cash may be the winner of all of those actions. at least enough that with the short Bitcoin position, you know, even if Bitcoin Cash doesn't fully replace, let's say Bitcoin falls 90% and Bitcoin Cash only goes up 2x, they may still be net winners to that and their hardware may not lose much value. So this is, in my mind,

we're in a fundamental disequilibrium state right now with Bitcoin and Bitcoin Cash that could take five years to play out. I'm not saying it's going to resolve anytime soon. Very interesting. It's crazy. it's crazy the game theoretical world that we've been thrown into with the then that's why i'm so drawn to bitcoin is the game theory of it it's like you have these actors and you're playing

mind games you're trying to think seven steps ahead and it's enthralling it's like oh shit man it's heavy it's like oh fuck i could lose my night my money overnight but at the same time i wouldn't want to be involved in any other space in the world because it's so exciting and this attack it is possible it is possible from a from a theoretical standpoint is very possible and that is why so my whole i had a conversation earlier before we met tonight like so we're basically just waiting for new asic producers to enter the market like that is what could uh decrease the chances of this attack happening is more competitors entering the asic manufacturing uh market if you will am i correct in assuming that i think so so the economic forces

to me at least are not clear um but yes at least short term bitmain so so i i think and i'm not an electrical engineer and i'm not an expert on mining i think what happened was bitmain genuinely innovated faster than everyone else and was a generation ahead of everyone else in the electrical engineering yeah arjun arjun balaji wrote about today um he said to say hello by the way um he's fantastic he really is he really is great like one of my favorite people to meet up in the city to talk about the shit with um but he said with the shot 256 asic chips specifically like from idea to concept to production was the fastest turnaround in asic chip mining history like that's how driven people were to go mine bitcoin is that was the quickest like all right we need

to design this SHA-256 specific ASIC chip and basically from idea to prototype to production was the fastest turnaround ever and that's again what draws me to this space is that the incentives are so aligned that it produces stuff like that where you have so many gains in efficiency from a technology perspective that it is pushing people to push the limit at paces that have never been pushed before. Yeah. Uh, so, so using that as a, so one example of that is people sometimes bring up energy usage. So an interesting line is, um, typically I actually traded electricity forwards, which is a really weird concept. So when I was at Susquehanna, Susquehanna international group, um, I traded, uh, Northeast and then Texas electricity. And the way that works

is you're trading a financial contract, the cash settles betting on what the price of electricity will be at some point in time and it's very abstract you can model it but it's also very real and so sometimes the person on the other side of your trade is a trader at a power generation plant and so you can imagine what happens if you uh sell enough power to them if you bet that electricity prices will be low what they'll do is literally turn off their power plant that's what enron did yes so i was kind of on the other side of enron trades i was like not the guy at enron I was smart enough to know that I was the idiot, so I didn't really lose money. But I ended up telling my bosses at Susquehanna that I'm the fish at this table.

I'm trading against the guy at the power generator. There's no way I'm going to beat him in this poker game. I'm the fish at the table. So that was a short-lived three months where I was very proud that I only lost a trivial amount of money playing in kind of a rig game. Risk management, that's the key. That's the key. Absolutely. Lose as little money as possible.

Absolutely. and it was really clear to me that I was the fish at that table I'm totally blanking on where I was going with that the whiskey will do that to you we're talking about efficiencies oh energy yes thank you

thank you so yeah so people brought up Bitcoin's going to destroy the world greenhouse effects so until now electricity usage was always local so Texas electricity which was called ERCOT, which was its own electric trading center, was entirely separated from East Coast

electricity because you could not transfer electricity from the East Coast to Texas. You would lose like 99% of the electricity and transit because as you lose that electricity, you just kind of can't be transferred through normal wiring. So electricity has always been local. Bitcoin changes that. So what Bitcoin has done is it's placed a bounty on who can source the cheapest electricity anywhere in the world to earn bitcoin globally in a decentralized way and that if you think about it is an incredible bounty to find the cheapest most efficient source of electricity which seems to be

i don't know if this is like a fundamental physics thing or just is but empirically it's it's clean energy clean energy seems to always be cheaper if you can go anywhere like typically the issue is that um okay it's great to say you're going to get geothermal from iceland but no one lives in iceland right and how do you get that into a city in chicago or whatever and so where people live has tended to be more near like coal and natural gas and and fossil fuels um whereas a lot of the clean energy things like wind is places almost by definition like like windswept plains right in kind of siberia or kazakhstan or whatever where no one lives um so but now you can make use of that clean energy and so there's some evidence already that bitcoin mining has pushed

the world towards greater clean energy usage this is my favorite spin zone of people that that don't like bitcoin like ah it's destroying the world it's like no actually it might help us save the world and the argument is that it's going to push us towards cleaner energies because and it's going to be worth it because a censorship resistant peer-to-peer decentralized network decentralized as money excuse me is worth that exertion of energy and if it's helping us get to the most efficiency excuse me most efficient form of energy possible all the better like why why not go down this path like and another so here's another thing we talk about on tales from the crypto lot is so a lot of people's notions of this space are based on anachronisms of them trying to apply

old world tendencies to this new world which we live in with bitcoin and blockchains so they're trying to say all right um to basically make bitcoin run you need all this energy and it's going to basically destroy the destroy the earth because you're gonna have to use fossil fuels and all that stuff to to mine it and it's like no if you take it again open the hood take a look under the hood you've created an incentive system to where these miners want to be as profitable as possible so they have to find the most efficient use of energy to make sure that they gain a profit and it just so happens to be that in the future the most efficient use of their energy is going to be with renewable energies am i wrong in assuming that i am assuming it seems like a

reasonable assumption based on what we see today i don't i i i'm wary of making assertions i i i don't think we know exactly how this plays out from an energy perspective yeah we got so third episode of Tales from the Crypt, we got into Dyson Spheres. How much do you know about Dyson Spheres? Just the one-sentence description. It writes, sphere around the sun that collects all the possible energy. That's the totalsome knowledge of my understanding. Pierre Rochard thinks we're going to end up at Dyson Spheres mining Bitcoin and cryptocurrencies

and bringing clean energy back to wherever we live at the point in time where Dyson Spheres are possible. That's hyper-Bitcoinization. I've actually never met Pierre in person. but I've chatted with him a couple times. He's a smart guy. Fun. Love Pierre. Hey, Pierre, congrats.

You just became a new father. Had a baby boy a couple weeks ago. Congrats, Pierre. No, and that's, I mean, I consider Pierre a friend, and it's interesting seeing somebody, he, in my mind, he has simplified this game down to something very, what I respect, is like it's this is the way not this is the way it works but like i have this

let me think about this for a second swiss he's gotten to me he's very he's got very he's very principled in his views like he's a very from first principles type of person you know i i really wish that i had a really simple thesis and let's so we can cut this out let's not make it about pierre personally so bitcoin maximalist in general have a very first personal purse bitcoin maximalist in general have a very first principle view of the space where hey we just need something slow and dumb to make a very perfect money and then from there we can build what everybody's looking to build and i respect that sort of view on the space very much i would say i respect that view over most others uh so it's i i am i empathize

sympathize it's totally sensible um i just i almost wish that i had blind confidence in it because it would make life a lot easier and less stressful right if i if i could i mean i i envy pierre and i envy um i don't need the fanatic is too bad is a negative connotation word i envy the religious in that regard and you sleep easy at night so imagine a scenario where let's say i think i'm 70 let's have 75 sure that bitcoin's going to conquer the world um it's very likely that i will like i'll achieve the same outcome as pierre that pierre's outcome will be will be positive but he's going to have a stress-free existence i'm going to have a stressful existence i'm going to focus on that 25 chance so my problem with it is that um there's a few so one

Bitcoin may be good enough, and it may have enough of a Lindy effect and enough of a first mover advantage. But it may be that there are things that are two orders of magnitude better that could replace Bitcoin. So it may be that there's a consensus mechanism that is fundamentally better in not at saving the world of green energy or anything like that, but better at being decentralized, better at being secure. So proof of work we know is not perfect. It leads to centralization of mining under its current form. We don't know if there's anything better. If there's a form of consensus mechanism that is more Bitcoin than Bitcoin, that is more decentralized and is higher throughput and lower fee and every other thing that's good, but if it beats Bitcoin on its – Bitcoin's core features, that could kill Bitcoin. It could replace Bitcoin.

Another thing is that the Lindy effect, the network effects are trivial right now. This is an argument I have with a lot of Silicon Valley VCs who say Ethereum is going to conquer the world because there's 4,000 devs working on Ethereum, which to me is not – I struggle with that argument, and I struggle with why they understand that argument or why they would pitch that argument because 4,000 is nothing. So no one uses cryptocurrency, like simple reality, like less than 100 million people own it at all, less than 10 million people actively use it, less than 20,000 people are developing it in any form at all, and there's less than 200 real protocol developers. And so the network effects are basically zero. Like, here's a real number. Telegram has already raised $850 million, and it looks like they're just getting started. Why do they need that much, though? That's a separate discussion.

But $850 million, they could replicate with $850 million a huge amount of Bitcoin or Ethereum's network effect. So what are Bitcoin's network effects? Well, they have ATMs in every major city. $200 million, you can replicate that in a month. One month to have ATMs in every major city supporting Telegram or Litecoin or Monero, whatever coin of your choice. You know, Bitcoin is on every major exchange. Again, you give every big exchange $10 million, they're going to list you.

Like, you get on every major exchange in a month. It's been the rumor of Binance that people have had to pay to get on, you know. Rumor. Oh, Binance actually explicitly, I read an article from the Binance CEO where he said that he was very, very upfront about it. He said, if you pay more, you're more likely to get listed. So that's that's not a secret. That's not that's like literally an article that I read. I don't know the Binance CEO. That was public capitalism driving driving. It's not for quid pro quo. It's just if you offer a higher finder fee, you're more or I don't know what the term for the fee is. You're more likely to get integrated. It's not a guarantee. It's not, you know. So my point, though, is that if we think cryptocurrency is going to be more than a toy, because right now it's basically a toy, the assumption is that in three years it won't be a toy, or five years, or ten years, that more than 100 million people will own it.

Maybe it's 500 million, a billion, three billion people will own it in five or ten years. Then the current network effects, the current user base, the current ATMs, the current – is trivial. The number of new developers who are developing cryptocurrency in five years will dwarf the entire current developer base. So the current developer network effects are effectively trivial. Yeah, and so I guess what it comes down to at the end of the day is how much do you take the origin story into consideration? And again, this is where I come from. Again, I'm dumb. I don't know a lot about what I'm talking about.

but i do realize that throughout history humans cling to narratives that's why religions are built that's why people that's why we have in god we trust on money that's why that's why the american dream is still a thought like people cling to narratives i don't think anybody is ever going to beat the satoshi narrative you didn't see the article today did you about ira klyman suing craig satoshi yeah i mean that's another fud thing yeah 550,000 bitcoin they're gonna they say they have identifying and information on who satoshi is correct so the narrative basically if this if this lawsuit goes goes through the courts they're gonna they're gonna out who satoshi is right so the implication is that dave kleinman was satoshi according to

the lawsuit so first let me like add an asterisk here um people in the crypto world hate speculation over satoshi um for a couple and by people like i mean like like people like pierre like insiders people who've been in the space for a long time um and the reason for that is one they don't want to endanger people's families for example so if you speculate on who it is their family could be at risk um they also just think it's fud or you know it's it's mindless speculation so the only reason i'm i'm i'm willing to throw you know to discuss this is because dave climate's brother just publicly sued greg wright this is public record that ira state is ira climate is effectively implying that Dave Kleiman was Satoshi and that Craig Wright worked on the project tangentially.

That's kind of the implication of the lawsuit. Craig Wright's claim when he went public saying he was Satoshi, what was it, a year and a half ago, two years ago, was the same, just reversing the roles. He said Dave Kleiman helped him, that he was Satoshi, and Dave Kleiman helped. So I bring that up really just because you were just kind of, you know, hinting along this direction of the narrative that if it turns out so i don't know what's going to come out like the people like pierre uh and i use pierre just an example of a crypto insider have a very very high standard of proof they say basically we don't accept someone as satoshi unless they sign with the genesis block key well that key first it might not exist it it may the owner may have deleted it

it may have died with dave plyman or or someone else who passed away um we may never have that level of proof ever and that may be fine as a standard of proof to say we're not going to accept you as satoshi until that fine but as thinking individuals it's not binary we don't say either you have completely proven something or i'm simply not going to think about it that's not how we work as human beings so if i would argue this situation is binary it's either you sign it or you're not satoshi i don't think that's sensible that's not how that's not how most people think about the world so so if let's say there's overwhelming evidence presented that um i'll use an example that Dave Kleinman was Satoshi Nakamoto

and that he wiped his hard drive a day before he died in 2013. Let's say there's overwhelming evidence. We have- How did he die, by the way? So he had left the hospital a few weeks earlier with complications. I want to say it was a MRSA.

It was like a chronic infection. Damn. I think it was MRSA. It was a chronic infection. Like an antibacterial infection? I think so. I would hate to be spreading misinformation. Or a bacterial infection.

He was unstable in 2013, chose to leave the hospital after being in and out of the hospital for a long time, and then died in his home a few weeks later. And I think it was from an infection, I think, or something infection-related. Maybe it was like emphysema or something. But let's say there was overwhelming evidence that it was him, but he passed away. Maybe his hard drive is encrypted and in the hands of his brother, or maybe it was wiped. We can say, well, we're not going to accept that he was Satoshi. We're not going to assume that he was Satoshi. We're not going to call him Satoshi. That's fine. But we can't ignore evidence like like I as a thinking individual, I'm not going to like cover my eyes and ears with my hands and say, la, la, la, la, la, no sign Genesis key.

I'm going to ignore all of the evidence in front of me that Dave Klein was Satoshi. Right. I can I can say like I'll say it's not certain. It's not proven. We don't know he was. But so I say all that not to say that Dave Klein was Satoshi. I don't know. There's at least some evidence pointing in that direction and very little like to me, there are no other credible candidates that I've heard of. so if it's not him it's likely someone whose name has not been put forward so like a friend of mine um who's who's very tight with the core community her belief is that it's someone else who was on the cypherpunk list that early early list that uh the original white paper was published too which had um a small number of people but large enough and some of them were anonymous and there's some people that have never really been tracked down that have never really been died so it may be someone whose name like all the other names that people put forward i'm pretty confident are not

satoshi dave climate is kind of the only guy left who in my mind could be but there's dozens of others who are potential candidates that no one's ever really looked into so long story short i don't know who satoshi is but um but there's some chance that this the satoshi myth faces a major battle over the next year due to this lawsuit very interesting wow and and that that's going to test a lot of people's beliefs and what this is because i think again you're you're watching me question what it is right now in my mind like because that's what makes sense to me is that like it you need to not know who satoshi is to make this work in my mind it's a much better story right i will say it's it's better when when so i

thought i i thought it was somewhat likely to be dave um a year and a half ago and i found that very reassuring because he passed away in 2013 and that's horrible to say i i feel bad kind of being happy that anyone passed away but um it's certainly better for the bitcoin community and better for the success of the cryptocurrency project for satoshi to no longer be with us yeah and again i apologize to his family that's a horrible thing to say but um you know and for the story for the narrative to be to be somewhat confident that satoshi is not going to come back and weigh in on politics is positive for the space, I think. Hugely positive.

I mean, again, falling back to narratives, it's a quasi-immaculate conception where it just shows up out of nowhere, and it's like, you have this. You can use it to your benefit. And this is fucking me up right now, I'm not going to lie. This is fucking me up thinking of Dave Kleinman as Satoshi. I'm not asserting that.

No, no, you're not. No, we're doing a thought experiment here. Like, what if it were to come to be that has proven that he is Satoshi? How would we react? Would it destroy the project? That's a question we ought to ask ourselves. Yeah, I don't think – the fact that Dave did pass away, I don't think it would be that bad of an outcome. The riskier outcome, the one that people are much more scared of or not even scared of,

The people who are scared of it just reject it as a possibility is that Craig Wright was in any way associated with the project. You can't deny – I mean you can't confirm it or deny it at this point, right? Yeah, we don't know. And Craig has a history of backdating documents, forging documents. Like it's been proven that he's done that in previous cases. He faked the private keys to Gavin, right? Or he faked some proof to Gavin. Right, right.

So it's very hard to know what's true, what's not. Like we have legal documents. We don't know what's backdated, what's fake, what's real. But if Dave was Satoshi, then Craig very likely worked with him on the project. There's so many emails between the two of them that both Ira, Dave's brother, had produced and Craig had produced. It suggests that there was some level of collaboration between them on Bitcoin. And there may have been a third member, maybe even a fourth member. But that's much scarier because Craig is very alive, very loud, very political.

and and that's a problem for for most people in the bitcoin community yeah bitcoin specifically or the landscape in general i think bitcoin specifically yeah so the people who um i think bitcoin specifically the rest of the ecosystem would almost prefer for bitcoin to to be get knocked off the mantle yeah because at the moment it is a bit bitcoin and everything else like like the question i was asked frequently was like why do we need anything other than bitcoin will anything dethrone the question it was almost binary it was either bitcoin's going to conquer the world or it's something else or or we can drop the maximum maximalist thesis which is a bit of a false dichotomy but it was a little bit like either bitcoin can do everything or we have this

universe of investable opportunities um which is a false dichotomy but i mean i think like most other assets. Crypto as a whole doesn't care about this. It's really a Bitcoin issue. It is very Bitcoin specific. I'm a full believer in the fucking narrative story. The narrative is important in my mind.

Maybe not in others, but in my mind it is important. It's going up cleaning crew. That's how late we're here on a Monday night. The cleaning crew just checked in to make sure we're alive. Aria's been very fucking insightful. Especially this last part of the conversation.

This is a sort of path that a lot of people don't like to go down because it's uncomfortable. Like, what if your gods are not who you thought they were or some shit like that? It's really interesting to me. Like, I have a lot of friends who are Bitcoin core developers and just part of the core community, and they hate this discussion. They hate the idea. I'm not going to lie. It was a little squirmy at first, but it's like, hey, if this shit's going to be real, you got to fucking confront this shit, you know? There's a lot of god worship.

So the way it's been framed, to me, it's something I'll assert. It's really clear to me that Satoshi was more than one person, just reading the writing. So going from things like double-spaced to single-spaced writing, the tone changes at points. It really reads like at different points, Satoshi was written by different people. And to me, that's not at all a problem. That seems very intuitive because for 20 years, people were working on Bitcoin unsuccessfully. So Adam Back did Hashcash, and Nick Szabo did Bitgold. And there were all these, you know, brilliant, brilliant men who and a community of cryptographers that were tackling the problem unsuccessfully.

To me, it's much more credible that a handful of people with different skill sets, you know, maybe a coder, a cryptographer, a block, an engineer, kind of a game theorist came together to solve the problem. And the writing seems to support that. But some of my friends in the Bitcoin kind of maximalist community are like, no, it was one super genius. It was one. Satoshi is a god. I don't believe that one superhuman who did this. And don't you dare say otherwise. And that person is alive and well. And because they are a bit, you know, a beneficent dictator will never or God will never spend their Bitcoin or transfer them. I find it easier to believe that Satoshi is like an AI or an alien over one single person. Like, I find that easier to believe that it's something that bootstrapped itself.

But I haven't articulated this in the podcast, but if I were to guess who Satoshi was, I would guess it's a group of people, not one individual. And I would guess it's a group of people over an artificial intelligence or an alien. I just like fucking, not fucking with, but like playing the thought experiment. Like, hey, what if it was an alien? that's trying to distract us or trying to inject a technology needed to get to the next level.

It's a fun thought experiment to go through. But practically... There was a lot of buggy code from that alien. Right? I mean, Bitcoin, the code was pretty crappy. That's what coders tell me. I'm not a coder, but... Yeah, no, Satoshi was a terrible developer

and an incredible game theorist from what a lot of people will say. Yep, and it was built very much on the back of the work of other people right so adam back is um referenced a couple times in the white paper because the satoshi white paper was built on the back of big old and hash cash and there was very little cryptographic innovation so it borrowed proof of work mining it borrowed like all the pieces and kind of just assembled them in a novel way in a critical novel way so i'm not trying to take anything away from it but it wasn't like i look at the social white paper

and i don't see like a god i see someone who was probably an outsider or a team of outsiders that approached the problem with novel eyes and had certain critical innovations that built on the shoulders of giants and i would agree and ari we've been in this booth for a while i'm sweating i think my hair is all frizzy now from how humid it is in this in this studio i appreciate you coming out on a monday night this has been a very very very very insightful conversation i've appreciated your insight thank you for sharing it uh with our audience um where can we find out more about you do you have before that do you have

a closing statement or anything for the audience anybody keep in mind our audience is people probably relatively new to this space oh man that's a tough question we need a one line word of wisdom Ari and we need it in the next five seconds

I'm going to give you one word of wisdom the Hebrew word which means flexibility give me shoot give me shoot give me shoot flexibility flexibility

there you go one word of wisdom I would wholeheartedly agree with that Ari where can we find more out I'm on Twitter at Ari David Paul

Ari David Paul A-R-I-D-A-V-I-D-P-A-U-L and I'm already bent and I'm drunk on a Monday night and you can find more about me on Twitter at Marty Bent

and that's about it peace and love peace and love That was fun Thank you for putting up with me No, no, it was fun Thank you It's even a little loud

I'll loosen up