The Breakdown - Crypto Daily 3@3 - 7.29 | Lightning Network vs. surveillance / US Congress response to de-Americanization / Paradigm shifts

Episode Date: July 29, 2019

Weekly countdown of the 5 most important essays and threads from the week before on Long Reads Sunday. This week featuring Lightning Network vs the encroaching surveillance state; a US Congressman's response to Circle leaving the US; a hot take on the Trump Administration's interest in backdoor encryption and more.  Video produced by BlockTV Watch the full episode: https://www.youtube.com/nathanielwhittemorecrypto

All right, what's going on, everyone. Welcome back to another crypto Daily 3 at 3. So just like last week on Mondays, the Daily 3 at 3 is basically a rebroadcast of the Longreed Sunday top five I do every week with Block TV. So basically this is me counting down the five most essential threads, essays, tweets, you name it from Longreed Sunday that week. This week is cool because it is not just dominated by Libra. Obviously, the goings-on of kind of the corporate emergence in crypto and the governmental response does leave its footprints on this, but there's actually kind of a lot more interesting diversity of topics.

So hope you enjoy this, and we'll see you tomorrow for another regular Crypto Daily 3 at 3. Peace out, guys. And welcome back to Block TV, where it is time for our Sunday long. Every Sunday, the crypto community receives a treat in the form of a well-researched and thought-out Twitter thread by one of the top writers documenting the ecosystem. Yes, I am speaking about none other than Nathaniel Whitmore and what I love to refer to as the New Yorker of the Cryptosphere. How are you? Good. How's it going? It's a fairly quiet week, I think. We're waiting for another hearing on the hill, but I'll ask you about that in a minute.

Let's go to our list of the week, The Emma from 5 to 1, number 5. Your pick for the Long Read, Melton's paradigm shift. Now, of course, Melton, a well-known figure, one of the women also, at those hearings, at the congressional hearing on the Hill two weeks ago. Talk to me a little bit about her basically once again talking about, I'm looking at it as once again, you know, informing us about the change that is O'R coming upon us, right? Yeah, so, so I mean, first of all, I think this week was one of the rare weeks where because there wasn't some news cycle dominating thing like the Libra hearings, you kind of, we saw a lot more of the content this week that was people just kind of thinking big and explaining things. And so I think this was an example of that.

So a couple weeks ago, Ray Dalio, the hedge fund manager, released a paper or an article on LinkedIn called paradigm shifts. And so that got a lot of people kind of thinking more broadly about the economic paradigm shifts and framing things in that way. And so what Melton is talking about in particular with this thread is the idea that until Bitcoin, there wasn't, there was a constraint of the digitization of things was that it usually created new intermediaries, right? So you couldn't create kind of a digital money without there being a new type of intermediary that allowed you to access it. And one of the powers of Bitcoin was that it really broke that paradigm because it didn't require a new type of intermediary. And so she's just playing it out. And so what I think that this represents and the reason that I thought it was worth a nod on this is that as we are, we're going through a stage right now in these markets where there's a lot of education happening, right? A lot of regulators, a lot of business folks who have kind of had this, you know, in the background,

but haven't really had to engage yet, are now at the point where they feel like they have to engage. They have to dive in. They have to understand. And so I think it's important to do this type of communicating and this type of educating, which is a little bit more about just how to help understand really what is different about what's going on. Because if you're not, if you're thinking about new phenomenon from an old frame reference, you can often get trapped in old ways of thinking. So I think this was kind of an example of a type of content

we're going to see more of as there is a greater need to educate regulators and others. No, entirely. And one begs the question, though, in what kind of context we're going to see that, you know, one of the things that's trending, I'm planning and asking you about this, because we're looking at the paradigm shift,

clearly we're in the midst of it. Netflix, though, also this week came out with a film called The Big Hack. Sorry, the Great Hack, I believe it's called. And it kind of paints this whole digital world apropos intermediaries. Because I think that's the thing that we're talking about Libra

that we're trying to maintain this digital world or create it without paradigms. But Libra is something completely different than that, isn't it? I know, I took a segue. Yeah, you had to bring it back to Libra, didn't you? I know, I know. It is. I mean, part of, I think, what you're getting at, too,

is that there is this, I think, why it's important to notice just how Bitcoin breaks this mold of intermediation is that there's a competition happening right now for two different versions of kind of a digitized world. One is controlled by either new power structures or old power structures co-opting new opportunities, and the other is controlled in fundamentally different ways and governed by math and governed by networks and communities. Not that they can't coexist, but I think that their end games look very different. And I think that part of what's important about recognizing that they're different is understanding, you know, and being intentional about the decisions we want to make

about which of these futures we're actually trying to drive ourselves towards. Entirely so. And that has to be a bigger conversation. It does have to get to that level. Okay, moving to number four, it's one of my favorite stories this week. The pocketful of court, so to speak, looking at the threat, and that's the story that we also reported. Let's start by something cool. That is something that you write. The SEC issued a no action letter for a pocket full of quarters in-game currency. And that, of course, is, you know, it's the one thing that made me think, maybe all we need is basically children.

Break it down for the viewers in the sphere, that is. Yeah, so, okay, so, so, I mean, Marco, if you look down in his thread a couple ways, he goes through exactly what happened. And then the way that he summarizes it is the SEC just okayed arcade tokens, basically. So, so pocketful of quarters, it's an in-game currency. It's basically meant to be kind of like a point system that has some real value. However, you can't take it outside the game. There's no secondary market access.

So it's basically, you know, there's not, there's real limitations on what you can do with it. It's when it comes out, it won't be for sale before you can actually use it, so on and so forth. So it basically what the SEC said is like, yeah, this is fine. And Marco, you know, who's one of the kind of faithful crypto Twitter legal core broke it down. And the interesting thing is that kind of part one of his thread effectively says just how incremental this is. Part two of his thread kind of makes the point that, you know, this is for regulators, this actually shows a pretty meaningful trajectory of update, right? It's significantly, or at least it's a meaningful step farther than the last no action letter

that the SEC sent a couple months ago. And kind of his point was that it's, you know, we're in this tough situation where, you know, regulators are moving faster than they're comfortable with. Companies are trying desperately to be compliant, but it's so incremental compared to the state of innovation that it leaves the whole industry in this conundrum and kind of incentivizes you to play fast and lose.

So it's an interesting testament to kind of just where, where regulatory action is right now. Where it is that they understand they cannot ignore. But it's fascinating to see, you know, an in-game token. At the end of the day, of course, we like it in the media because it has a kid attached to its invention, so to speak. But you know, when you see the SEC not saying, what is it? Is it the security?

Is it that just basically sending this no action letter? You know, I view it as an optimistic thing that not only can they not ignore it, but there are places where they basically think, okay, we can't just pull the trigger of, you know, whatever, the Howie Act, which seems to be their favorite excuse. Moving to number three, though, on Warren Davidson, the pro-crypto congressman from Ohio, tackling taxes. First of all, Warren Davidson, I think also the failure to act,

him chiming basically sounding like somebody from within the sphere, right? Yeah, absolutely. So the context for this is there's been one of the, one of the kind of trends and narratives that I've been watching for a lot of this year is something that I've called kind of the de-Americanization of crypto,

where you're seeing, increase regulatory scrutiny, kind of have companies leaving, basically, U.S. shores, or at least, you know, leaving and then restarting again in some very neutered, limited fashion, right? So this finance, finance, circle. Yeah, yeah, no, no. So this, this, this particular quote came after Pomp, set out a tweet about circle setting up in Bermuda, I think. So it's kind of a comfortable circle from circle saying, you know, it's getting hot in here and we might have to leave, to them actually leaving, to them finding a place. And so Warren Davidson, who you may remember from asking Meltem about shit points, was he, you know, it's, I think that it's cool to see him

engaging. It's also cooling to see him engaging in the context of, you know, the spheres that this industry is operating, right? He wasn't sending out his own tweet, you know, from responding to one of the leaders of the, or to, you know, to a big name within the sphere. He's responding to Santoliano. Yeah, yeah, yeah. Now, he's in the conversation. And I'm wondering with you, because there's another hearing on the Hill tomorrow, where actually, you know, the Circle CEO is going to sit and explain to several members

from Congress basically why they have left. And I think that goes to the heart of, you know, again, I'm sorry to bring back Libra, but to the heart of David Marcus' argument, you know, that's why we're setting up in other countries. So this is helpful in that way. Yeah, no, absolutely. I think the hearing tomorrow will be interesting. We didn't really get a chance last week or two weeks ago, I guess, to see any really kind of pro-crypto Senate members, because it was just so much about Libra. I'm hoping that tomorrow we're pleasantly surprised to find out that there are some who also don't particularly love Libra, but who are interested in this new technology. And in the attempt to

expand the you know paint a dare I use you know quote the ripple letter you know paint a broader brush than just Libra on the cryptosphere so it's not just tailored to them and this is in some ways optimistic going to number two and Matthew Green on back doors I'm gonna this is from a John Hopkins cryptographer I would I would paint that with this brush but the favorite thing I saw there was at the beginning as he starts William Bargan gave a talk today at Fordham on going dark and the need for encryption back doors.

That's within the thread, within the thread that you featured. A lot of this is old hat. The surprising thing is that it was the only subject of the talk. It seems like the Trump administration, and we're quoting Matthew, is serious about this. Are they, but what is he arguing in the thread? Let's start with this.

So what the subject of the discussion is encryption backdoors in social apps, effectively. So making it easier for law enforcement to move beyond or to get around and encryption and actually be able to read messages that were theoretically private. Wouldn't that make them happy? Yes, go ahead, sorry.

Exactly. And so this is something that has long been kind of bandied back and forth. I mean, this is at one of the very central questions of kind of the right to privacy, versus the creeping surveillance state. This is one of the main battlegrounds for that. And the reason that this is notable and why I think Green got into it so deeply

is that this isn't the first time that Trump administration has rattled sabres about this. It seems to be coming up over and over. And this is the sitting US Attorney General. So it's not just a low level. Yeah, this is the man with the power to help decree this, right? Yeah.

And it's made even more notable later by, you know, news that came out this morning or may have came out this morning around Facebook and WhatsApp encryption and what's going on there. But I think that the key thing and what Matthew Green kind of ends on is so he does a couple of things in the threat. First, he talks about this idea of the government trying to kind of get their hands into these apps, which is, again, it's been a battle behind the scene. with companies like Apple fighting very hard against it. And then in the second part of the thread, the reason that this is, you know, there's two reasons this is notable for him. One is that the Trump administration seems to be taking it seriously

and is really focusing on it. The second, though, is that Barr seemed to make an argument that all it will take is one, you know, one act of terrorism or one major event, and they'll be able to just force this through whether we like it or not. And where he kind of ends is my fear is, and you know, dare I raise this, but we know what happened after 9-11 and the laws that were put in place. And in many ways, he's right in that.

I mean, it's a horrible thing to say, but one act of terrorism and many, you know, legislations under the umbrella of security or, you know, or national security can happen, right? Oh, yeah. I mean, this is also, this is Brad Sherman said at the hearings two weeks ago. He said, you know, the first time that the terrorism that's financed, you know, with Bitcoin, see how much Americans, you know, still support it then. Now, obviously, those of us in this industry, it's hard not to cynically just point to, you know, bags of cash at this point and say, really, you know, are you going to focus on Bitcoin? But who knows?

You know, I think that the, what's for sure is that any time violent armed conflict, whether it's, you know, real declarations of war, whether it's subaltern terrorist-type acts, they give governments expanded powers, either formally or informally just through the ability to exert soft power and kind of the force of moral righteousness to do things that compromise freedom and liberty in the name of security. And that's the tension. And, you know, I think it is nerve-wracking to see such... It's one thing for Brad Schrofts. Sherman to say this. You know, he's kind of making a point really broadly.

It's another thing for the administration to be saying. No, entirely so. And I think you painted it very well, the dangers that lie from within all of us if something like that happens and then is used. I'm going to number one, apropos, which ties in very nicely, Alex Gladstein, that's his thread that you're featuring. Hope is not lost in the latest essay of Gladstein, writes, Nathaniel Whitmore. He argues that the Lightning Network could be a global private payments

network that combats the, that combats, pardon me, the aligning, that combats basically where we stand right now, the alignment of corporate and government surveillance. He starts to spread up with, you know, a future of personal plus financial privacy can be closer, more closer and am ad-living and more realistic than we thought. And he's attributing that to the lightning network. Break it down for us. and then let's discuss if we think that we're there yet. Sure. So for background, for those who don't know,

Alex Gladysen is the chief strategy officer at the Human Rights Foundation. He's kind of emerged onto the scene in the Bitcoin and Crypto space in the last, I don't know, six months or so, he wrote an essay for Time magazine last year about Bitcoin's role in kind of the human quest for freedom around the world.

And he's a civil liberties guy. I mean, you know, he's a veg on him. Yes. Yeah, 100%. And he's an interesting one because he is, he's not a Bitcoin maximalist in the sense of kind of what we see with crypto Twitter debates. But what he is recognizing that the availability infrastructure, liquidity of Bitcoin as a network is so dramatically different than any other cryptocurrency that relative to the work currently for people who are actually thinking about so. civil liberties and human rights and wondering about what cryptocurrency can do for it, Bitcoin is singular in its capacity to actually do things, right?

So this is a guy who's going to be really excited about people moving their money out of, you know, the Maduro regime via Bitcoin if they have the right capacity to in Venezuela, but not super excited about dash marketing efforts in similar like government. Right. So that's kind of the relevant context because what I think he's trying to say is, So he's pointing out the same kind of scenario that we've been discussing, the same challenge of creeping surveillance, which is coming from all sides, and is in some ways just a byproduct of data availability. And he's saying that, you know, we need private payments to combat that, right? That the information available in payments is so much more valuable than even just, you know, stated like, stated preferences.

And the reason I think that he's honing in on Bitcoin and Lightning here versus some of the other privacy coins is, again, that idea of where they are in their development cycle comparatively in terms of liquidity, in terms of network security, in terms of kind of the strength of the overall network. He's making the point that, you know, we don't just have to see or wait for something like Zcash or Monero to be, you know, kind of used around the world. that Bitcoin itself through the layer two architecture that is Lightning might actually have some of this private payments capacity. Now, he does say, too, that, you know, from his perspective, the more projects that are competing to create viable private money, you know, and he mentions Zcash and Monaro and Grin and Beam and all those, the better, right? He's not discouraging that competition. I think that his point is, you know, you don't necessarily, you see lightning a lot mentioned in terms of that, like, paying for a cup of coffee use case.

He's connecting between paying for a cup of coffee without people knowing that you have coffee and that contributing to some social credit score of yours. Some social credit or, yeah, the frightening notion. But as you said at the beginning of the segment, that when it comes to the paradigm, there's a battle going on, somebody will win. But Nathaniel, first of all, thank you for this rendition,

as we said, to mori at another hearing on the Hill. just to include a bit more other than just Libra. I can't wait for you to respond to that on our next segment. This was fabulous, though. As always, Long Read Sundays. We are Block TV. We'll be right back. For more news and updates, follow us on Twitter.